Event: On October 28, 2024, the company released its 2024 three-quarter report. In the first three quarters of 2024, the company achieved operating income of 11.234 billion yuan, a slight decrease of 0.19% year on year; net profit to mother was 2.151 billion yuan, a slight decrease of 0.62% year on year.

24Q3 earnings increased 8.9% month-on-month. In the third quarter of 2024, the company achieved revenue of 3.855 billion yuan, up 1.38% year on year and 3.60% month on month; net profit to mother was 0.714 billion yuan, down 8.25% year on year and up 8.88% month on month. 24Q3 corporate taxes and surcharges increased by 0.097 billion yuan year on year, mainly due to the increase in the resource tax rate in Shanxi Province starting in the second quarter; the fourth fee increased by 0.106 billion yuan year on year, an increase of 0.092 billion yuan over the previous month, mainly due to an increase of 0.074 billion yuan in R&D expenses over the same period last year.

Coal production and sales increased month-on-month in 24Q3, the sales price of tons of coal increased month-on-month, and 24Q1-3 gross margin increased year-on-year.

24Q1-3, the company completed raw coal production of 25.7941 million tons, up 1.47% year on year; commercial coal sales volume was 22.0696 million tons, a slight decrease of 0.30% year on year; the price of a ton of coal was 494.21 yuan/ton, which was the same year on year; the cost of a ton of coal was 261.85 yuan/ton, down 0.62% year on year; and the gross profit margin of the coal business was 47.02%, up 0.33 pct year on year.

In 24Q3, the company produced 8.8666 million tons of raw coal, up 5.39% year on year, up 4.58% month on month; commercial coal sales volume was 7.6178 million tons, down 0.45% year on year, up 1.59% month on month; the price of tons of coal was 492.27 yuan/ton, up 3.69% year on year and 2.19% month on month.

The company has abundant net cash, accounting for 53.5% of market capitalization. As of the end of 24Q3, the company's monetary capital was 15.965 billion yuan and net cash was 14.265 billion yuan, an increase of 1.048 billion yuan over the end of 24Q2. The net cash/market value ratio was 53.5% (market value as of October 28, 2024). The net cash flow from 24Q1-3's operating activities was $3.66 billion, or 1.7 times the net profit attributable to mother.

The dividend ratio has been rising steadily in recent years, and is expected to increase in 24 years. In 2021-2023, the company's dividend ratio increased year by year, reaching 14.37%/34.64%/40.06% respectively. Currently, the company has more cash on its account, compounding the high dividend trend in the sector, and the dividend ratio is expected to continue to rise in 24 years.

The controlling shareholder Jinneng Coal Industry Group has strong overall resource reserves, and asset injection is possible. On April 29, 2022, the company issued the “Notice on Solutions to Avoid Competition in the Industry and the Signing of Relevant Agreements”, proposing that Jinneng Holding Group will gradually invest eligible coal assets into the Jinkong Coal Industry in the future. Jinneng Holding Group has brought together high-quality coal resources from the three former coal companies in Shanxi. Currently, it involves a total coal production capacity of about 0.438 billion tons/year, coal production of 0.347 billion tons in 2023, and the coal production capacity of the Jinkong Coal Industry is only 50.5 million tons/year (including Tongxin mine). The future space for asset injection is expected to be broad.

Investment advice: The company's coal production and sales are stable, and the price fluctuation is small. We expect the company's net profit to be 2.934/3.18/3.279 billion yuan in 2024-2026, corresponding EPS of 1.75/1.90/1.96 yuan/share, respectively. PE corresponding to the closing price on October 28, 2024 is 9/8/8 times, respectively. Maintain a “Recommended” rating.

Risk warning: Coal prices fell sharply; Group asset injections fell short of expectations.