Key points of investment

The dual main business of coal circulation+cogeneration is based in Zhejiang and radiates at home and abroad.

The company, formerly known as Zhejiang Fuel Corporation, was listed on the main board of the Shanghai Stock Exchange in 2021. It is a large state-owned listed enterprise integrating “energy trade+energy industry”. The actual controller of the company is the Zhejiang Provincial State-owned Assets Administration Commission. As of June 30, 2024, Bussan Zhongda was the largest shareholder of the company, directly holding 54.12% of the company's shares, and indirectly controlled 3.28% of the company's shares through Bussan Zhongda Metals Group and Bussan Zhongda International Trade Group. In terms of business layout, the company is mainly engaged in coal circulation and cogeneration business. The dual main business model can effectively calm the impact of fluctuations in coal prices on the company, thus ensuring the company's steady operation.

Coal circulation: Purchase and sales docking reduces inventory risk and continuously strengthens the layout of high-quality resources.

Coal distribution is the company's ballast stone business. It provides integrated upstream and downstream supply chain integration services through the application of large-scale procurement advantages and specialized distribution experience. On the one hand, the company's coal distribution business uses a sales docking model, and the overall business inventory risk is low; on the other hand, the company has established a stable cooperation model with domestic and foreign suppliers to effectively meet the diversified procurement needs of customers through long-term supply contracts and fixed price resource locking, and has realized physical operation of overseas platforms, using locations and resource advantages such as Singapore and Indonesia to expand overseas business. Considering that current coal prices are already in a low range and there is limited room for further decline in the future, it is expected that the company's overall coal distribution business will stabilize in the future.

Cogeneration: The location advantage is obvious, and demand for concentrated energy supply is growing.

The company's cogeneration business location advantages are obvious, mainly covering some counties and districts in Jiaxing and Jinhua in Zhejiang. The above regions have all introduced centralized heating plans and confirmed the company's thermal power companies as heat sources for centralized heating, which has now formed an effective regional barrier for business. At the same time, the regional economy covered by the company's cogeneration business is relatively developed. Economic growth is expected to drive an increase in electricity and gas consumption. In addition, the company's new projects such as Jinyi and Shanying are put into operation one after another, and the contribution of the cogeneration business to the company's performance is expected to increase further. Furthermore, centralized heating has become a trend under policy promotion, and the original small boilers are facing elimination, which is expected to boost the company's downstream demand for cogeneration.

New energy: Diversified and collaborative business promotion opens up room for imagination to benefit from electricity reform.

On the one hand, the company is vigorously expanding molten salt energy storage equipment and solutions, benefiting from the linkage of three thermal power reforms in the context of electricity reform and opening up room for continuous growth; on the other hand, on the basis of having a power trading license, the company actively carries out construction work on energy storage demonstration projects and focuses on improving digital technology capabilities to promote the implementation of smart operation platforms. It is expected that the future will benefit from the massive park customer resources accumulated in collaboration with the cogeneration business, benefiting from the construction of virtual power plants and microgrids.

Profit forecast and valuation: The company is expected to achieve revenue of 40.02/43.37/45.951 billion yuan in 2024-2026, respectively, -9.72%/+8.37%/+5.95%, respectively; net profit to mother is 0.794/0.85/0.916 billion yuan, respectively, -25.05%/+7.12%/+7.69%, respectively, corresponding PE 7.8/7.3/6.8 times. In terms of dividend rate, considering that the company's dividend ratio has continued to be around 37% in recent years, assuming that the company's dividend ratio is 37% in 2024-2026, it corresponds to the closing price on September 25, 2024. The dividend rates are 4.73%, 5.06%, and 5.45%, respectively.

First coverage, giving a “buy” rating.

Risk warning

Coal prices fluctuated greatly, downstream demand fell short of expectations, and progress in developing new businesses fell short of expectations.