The company achieved net profit of 4.83 billion yuan in the third quarter, -0.6% year over year, and basically flat at +0.1% month on month. The company's third-quarter results were slightly lower than our profit expectations in the previous 3Q forecast. The company's gross margin for the third quarter fell 1.5 pct to 23.5% month-on-month, mainly due to a decrease in the share of self-produced coal production with a high level of gross profit, which compounded the negative impact of the decline in maintenance production and sales in the chemical sector on gross margin. We expect that as the fourth quarter gradually enters the peak traditional coal season in winter, the bottom support for coal prices will still be strong, and the company's high proportion of Changxie coal sales is expected to help the company maintain steady profits. Maintain “buy-in.”

Coal: The reduction in the cost of self-produced coal showed results, but the reduction in sales share dragged down the gross profit level. The average sales price of self-produced coal in the third quarter was 546 yuan/ton, down 3.2%/4.3%, respectively. Benefiting from increased production and cost reduction and efficiency, the unit cost of the company's own coal production in the third quarter was 274 yuan/ton, a decrease of 12.2%/6.9%, respectively, making up for the negative impact of falling sales prices on the sector's gross profit. In terms of production and sales volume, the company's coal production continued to recover in the third quarter, achieving 35.81 million tons of commercial coal production, up 5.2%/6% year on month, and achieving total commercial coal sales volume of 71.96 million tons, up 5.6%/3.3%, respectively. However, self-produced coal sales were 34.19 million tons, down 1.8% year on year, and only 0.9% month on month. The sales ratio of self-produced coal fell slightly. The gross margin of the sector decreased by 5 pct to 23.5% month-on-month.

Coal chemicals: Production declined due to sector maintenance, and the gross margin of the compressed sector was affected by equipment maintenance. Urea and methanol production declined markedly in the third quarter. Urea production was 0.293 million tons, down 46.3%/46.1% month-on-month, respectively, and methanol production was 0.344 million tons, down 30%/24.7% month-on-month, respectively. Affected by the decline in production, the unit cost of urea increased 27.4%/24.6%, respectively, and the unit cost of methanol increased 22.7%/17.6% month-on-month, respectively, while the unit cost of polyolefin and ammonium nitrate also increased by 8.3% and 12.3%, respectively, in the third quarter. Combined with sales prices of various products falling month-on-month, the sector's gross margin level declined markedly in the third quarter, reducing 14.6 pct to 2.5% month-on-month.

Profit forecasting and valuation

We forecast net profit for 2024-26E to be 20.19/21.92/23.45 billion, and the average value of 25E PE in the industry is 9.7 times. Considering that the company's long-term agreement ratio helps maintain steady profit expectations and production capacity still has potential growth potential, the company will be given an average PE of 10.7 x 24-25E for A shares, corresponding to a target price of 16.9 yuan, based on the A/H share premium margin (55%) over the past six months.

Risk warning: supply-side disturbances exceeded expectations; downstream demand recovery exceeded expectations.