Incidents:

On October 23, 2024, Power Investment Energy released its report for the third quarter of 2024: in Q1-Q3 of 2024, the company achieved operating income of 21.81 billion yuan, +10.54%; net profit attributable to shareholders of listed companies was 4.4 billion yuan, +22.73% year over year; net profit attributable to shareholders of listed companies after deduction was 4.284 billion yuan, +22.96% year on year; basic earnings per share of 1.96 yuan/share, +17.4% year on year; weighted average ROE 13.53%, +0.47% YoY.

On a quarterly basis, in the third quarter of 2024, revenue and profit rebounded significantly. The company achieved operating income of 7.683 billion yuan, +13.28%, and +17.81% year over year; achieved net profit attributable to shareholders of listed companies of 1.455 billion yuan, +45.55% month-on-month and +45.26% year-on-year; realized net profit of 1.405 billion yuan after deduction of net income from mother, +46.68% year over year.

Investment highlights:

Coal business: Overall profit is steady, and sales are expected to increase steadily in Q3. The company's coal business has a high long-term cooperation ratio. It is less affected by market fluctuations, the mining cost of open pit ore tons is low, and the coal business is stable. In January-September, industrial power generation was 7056 billion kilowatt-hours, up 5.4% year on year. In January-September, regulated industrial raw coal production was 3.48 billion tons, up 0.6% year on year. Among them, there was a year-on-year increase in July-September. Overall, demand in the coal industry recovered somewhat in the third quarter. The company's Q3 revenue increased 0.9 billion yuan month-on-month, operating costs increased 0.41 billion yuan month-on-month, and total profit increased 0.46 billion yuan month-on-month. Sales of coal, power generation, etc. are expected to increase month-on-month in Q3.

Aluminum industry: The year-on-year increase in aluminum prices may support profit recovery. Inner Mongolia Huomei Hongjun Aluminum & Electric Co., Ltd., the holding subsidiary of the company, currently has an electrolytic aluminum production line with an annual output of 0.86 million tons. It also has cost advantages and is gradually speeding up the pace of smart factory construction. The profit and loss of minority shareholders of the company increased year-on-year in Q1-Q3 in 2024. The company's comprehensive gross profit margin was 36.45%, and an increase of 3.4% over the same period last year. The rise in the electrolytic aluminum boom contributed positively to the company's performance. The average price of 2024Q3 China's Changjiang non-ferrous aluminum A00 was 19,565 yuan/ton, +4% year over month, and -5% month over month, but the month-on-month decline from July to August narrowed month by month, and aluminum prices were +2.1% month-on-month in September.

Electricity business: Thermal power may be restored year-on-year, and new energy sources can be expected to grow. Industrial thermal power increased 8.9% year-on-year in September, 5.2 percentage points faster than in August; industrial wind power grew by 31.6%, 25.0 percentage points faster than in August; under the overall upward trend in power generation, it is expected that the company's electricity business, which was under slight pressure in the first half of the year, may be repaired. The company's new energy installations are distributed in Inner Mongolia, Shanxi, Shandong and other regions. The Inner Mongolia region has 4.6997 million kilowatts of new energy installed capacity, accounting for 98.32%. Relying on the region's good wind and light resource advantages, it has strong profitability.

Profit forecast and investment rating: We expect the company's 2024-2026 revenue to be 28.64/29.77/35.84 billion yuan, respectively, +7%/+4%/+20%, net profit to mother of 5.49/5.84/6.73 billion yuan, respectively, +20%/+6%/+15%; EPS will be 2.45/2.61/3.00 yuan, respectively, corresponding to the current stock price PE of 8.3/7.8/6.8 times. Considering that the company's coal, aluminum, and electricity businesses have all increased, profits continue to improve, maintaining a “buy” rating.

Risk warning: (1) risk of coal prices falling beyond expectations; (2) risk of production safety; (3) risk of falling short of expectations for new green power projects; (4) risk that public data used in research reports may be delayed or not updated in a timely manner; (5) risk of measurement errors; and (6) secondary market transaction risk.