The Zhitong Finance App learned that Guohai Securities released a research report saying that against the backdrop of falling coal prices and production in the first half of 2024, the performance of listed coal companies generally declined, but profitability was still weak, and profits returned to a reasonable level. At the same time, the balance ratio of listed companies declined further, and asset quality was further consolidated. From a long-term perspective, during the energy transition process, it is necessary to protect the smooth operation of the energy system. Safe, stable, and inexpensive coal power is undoubtedly the best choice. In the medium to long term, the dominant position of thermal power generation in the field of power generation will not change, and its position will be further strengthened in extreme circumstances. It is recommended to grasp the value attributes of the low-ranking coal sector.

Listed companies' coal production and sales declined year-on-year in the first half of 2024. In the first half of 2024, in the context of strong safety supervision, coal production in Shanxi and other places declined significantly. In the first half of 2024, the output of 25 listed coal companies reached 0.59 billion tons, down 1.2% year on year, and commercial coal sales were 0.63 billion tons, down 1.0% year on year. If China Shenhua is excluded, the output of the 24 listed coal companies in the first half of 2024 was 0.42 billion tons, down 2.3% year on year, and sales volume was 0.4 billion tons, down 4.3% year on year.

The decline in profitability is linked to a fall in coal prices. The 27 listed coal companies that Guohai Securities focuses on achieved a total operating income of 656.9 billion yuan in the first half of 2024, a year-on-year decrease of 9%; a total net profit of 104.2 billion yuan, a year-on-year decrease of 22.4%; and a total net profit of 82 billion yuan vested in the parent company, a decrease of 24.5% over the previous year. Affected by the decline in coal prices in 2024Q2 (the average price of thermal coal in 2024Q1/Q2 was 902/848 yuan/ton, respectively), the net profit of 27 coal companies fell month-on-month to 39.3 billion yuan, down 7.9% from 2024Q1. In the first half of 2024, excluding companies that did not publish relevant data, the average sales price of coal from 24 listed coal companies was 604 yuan/ton, down 11% year on year; average sales cost was 379 yuan/ton, down 2% year on year; average gross profit was 225 yuan/ton, down 24% year on year; gross profit margin was 37%, down 6.1 percentage points year on year. Price cuts are the main reason for the decline in the profitability of coal companies' units.

The fall in revenue led to a slight increase in the cost rate for the period. Judging from the relative value (arithmetic average method), the period fee rate of 27 listed coal companies in the first half of 2024 was 10.7%, up 1.4 percentage points year on year. Guohai Securities judged that it was mainly due to a decline in industry revenue, etc. Among them, the sales expenses rate was 0.8%, up 1.3 percentage points year on year, and the financial expense ratio was 2.1%, up 0.1 percentage points year on year; judging from the absolute value, the cumulative cost of 27 listed coal companies in the first half of 2024 was 40.3 billion yuan, up year on year. 4%, of which sales expenses were 5.2 billion yuan, down 13% year on year, management expenses were 28.2 billion yuan, up 7% year on year, and financial expenses were 7.6 billion yuan, up 5% year on year.

The industry's profit indicators declined year over year. In terms of gross sales margin, the average value of 27 listed coal companies in the first half of 2024 was 30%, down 4.8 percentage points from the previous year; judging from the net sales margin, the average value of 27 listed coal companies in the first half of 2024 was 11.5%, down 5.9 percentage points from the previous year; judging from ROE, the average value of the 27 listed coal companies in the first half of 2024 was 4.2%, down 5.1 percentage points from the previous year.

Operating cash flow declined year-on-year, and debt ratios continued to decline. The total operating cash flow of the 27 listed coal companies for the first half of 2024 was 139.5 billion yuan, a year-on-year decrease of 1.66 billion yuan, a decrease of 1%; as of the 2024 semi-annual report, the total interest-bearing debt of the 27 listed coal companies was 458.8 billion yuan, which was the same as the previous year. The average balance ratio was 52%, down 1.8 percentage points from the previous year; if China Shenhua was excluded, the total operating cash flow for the first half of 2024 was 94.8 billion yuan, down 8 billion yuan from the previous year; as of the 2024 semi-annual report, the total interest-bearing debt of the 26 listed coal companies was 415.5 billion yuan, down 2% year on year, and the average balance ratio was 53%, down 1.8 percentage points year on year. Overall, due to the decline in profitability, the operating cash flow of the above companies has decreased, but most companies focus on debt management, the balance ratio continues to decline, and the overall asset quality of the enterprise has been further consolidated.

Investment Strategy: Overall, against the backdrop of falling coal prices and production in the first half of 2024, the performance of listed companies generally declined. However, it is worth noting that the average gross sales margin of 27 listed coal companies in the first half of 2024 was 30%, and the average net sales interest rate was 11.5%. Profitability was still weak, and profits returned to a reasonable level. At the same time, the balance ratio of listed companies declined further, and asset quality was further consolidated. Shaanxi Coal (10% medium-term dividend), China Coal Energy (30% medium-term dividend), and Shanghai Energy (medium-term dividend of 30.65%) implemented mid-term dividends to further return investors.

From a long-term perspective, during the energy transition process, it is necessary to protect the smooth operation of the energy system. Safe, stable, and inexpensive coal power is undoubtedly the best choice. In the medium to long term, the dominant position of thermal power generation in the field of power generation will not change, and its position will be further strengthened in extreme circumstances. During the “14th Five-Year Plan” period, the number of newly installed thermal power units increased markedly over the same period last year, and thermal power production is still showing a continuous growth trend, which plays a decisive role in driving demand for coal. However, the procedures for mining coal mines are complicated, the construction and production cycle is long, and the desire of mainstream coal companies to build new mines is still very weak. The industry's production capacity has basically reached a high load. After experiencing a nuclear increase in production capacity in the past two years, the space for nuclear growth has been drastically reduced. Combined with resource-depleted mines in the east and other regions, the restrictions on the industry's supply capacity have not changed. It is recommended to grasp the value attributes of the low-ranking coal sector and maintain the “recommended” rating for the coal mining industry.

Thermal coal stocks suggest focusing on: China Shenhua (601088.SH, high share of Changxie coal, steady and high dividends); Shaanxi coal industry (601225.SH, excellent resource endowment, steady performance and high dividends); China Coal Energy (601898.SH, high share ratio, undervaluation target); Yankuang Energy (, large overseas coal mine assets, flexible high-dividend label); Power Investment Energy (002128.SZ, both coal, electricity, and aluminum have both growth, stability and flexibility); Jinkong Coal Industry (600188.SH 601001.SH There is room for improvement in performance); Xinji Energy (601918.SH, continuous deepening of coal and electricity integration, stable profit and high investment value); Shanmei International (600546.SH, low coal mine cost, strong profitability and high dividends); Guanghui Energy (600256.SH, coal and gas two-wheel drive, smooth capacity expansion logic). Metallurgical coal suggestions focus on: Huaibei mining (600985.SH, undervalued regional coking coal leader, coal coking, etc.); Pingmei shares (601666.SH, leading coking coal in the central and southern regions, issuing convertible bonds); Lu'an Huanneng (601699.SH, which accounts for a high share of coal in the market and has high performance flexibility); Shanxi coking coal (000983.SZ, leading coking coal industry, target of Shanxi state-owned enterprise reform). Coal+electrolytic aluminum suggests focusing on: Shenhuo Co., Ltd. (000933.SZ, integrated coal and electricity, elastic target for electrolytic aluminum). Anthracite suggests focusing on: Huayang Co., Ltd. (600348.SH, layout of sodium-ion batteries, resonance between old and new energy); Orchid Science and Technology (600123.SH, excellent resource endowment, high-quality anthracite standard).

Risk warning: 1) the risk that the economic growth rate falls short of expectations; 2) the risk of policy regulation exceeding expectations; 3) the risk of continuing replacement of renewable energy; 4) the risk of coal imports affecting; 5) Focus on the risk that the company's performance may fall short of expectations; 6) the risk of coal price fluctuations.