Q3 The sharp drop in coal volume and price dragged down performance. Focus on coal and electricity integration+ high dividends, and maintain a “buy” rating

The company released its three-quarter report for 2024. In the first three quarters of 2024, the company achieved operating income of 5.41 billion yuan, -9.4%; realized net profit of 0.94 billion yuan, or -42.2% year-on-year; realized net profit of 0.96 billion yuan after deduction, or -41% year-on-year. Looking at Q3 alone, the company achieved operating income of 1.51 billion yuan, -17.8% month-on-month; realized net profit of 0.19 billion yuan, or -43.1% month-on-month, and realized net profit of 0.19 billion yuan after deduction, or -44.5% month-on-month.

Considering the decline in coal volume and price, we lowered our 2024-2026 profit forecast. We expect the company's net profit to be 1.28/1.36/1.39 billion yuan in 2024-2026 (previous value was 1.6/1.69/1.73 billion yuan), which is -37.3%/+6.5%/+2.1% year-on-year; EPS is 1.06/1.13/1.16 yuan, corresponding to the current share price PE is 9.7/9.1/8.9 times. The company's coal and electricity growth has an integrated layout. High dividends highlight investment value and maintain a “buy” rating.

Q3 Sales of commercial coal production declined month-on-month, and gross profit per ton of coal declined month-on-month due to falling coal prices compounded cost increases

(1) Q3 commercial coal sales declined month-on-month: raw coal production in the first three quarters of 2024 was 7.293 million tons, +3.8%, of which Q3 raw coal production was 2.352 million tons, -1.9% month-on-month; commercial coal production/sales volume in the first three quarters of 2024 was 5.633/5.688 million tons, +1.1% YoY, of which Q3 commercial coal production/sales volume was 1.785/1.807 million tons, -6%/-8% month-on-month. (2) The gross profit of tons of coal decreased month-on-month due to falling coal prices in Q3 and a month-on-month decline: the gross profit of tons of coal in the first three quarters of 2024 was 900.8 yuan/ton, -7.6% year-on-year, of which the price of Q3 tons of coal was 785.3 yuan/ton, -12.1% month-on-month; in the first three quarters of 2024, the cost of tons of coal was 572.2 yuan/ton, +14.8% year-on-month; the gross profit of tons of coal in the first three quarters of 2024 was 328.5 yuan/ton, -3 percent. The interest rate is 36.5% , -1.2pct year on year, of which gross profit of Q3 tons of coal was 182.7 yuan/ton, -46% month-on-month, gross margin was 23.3%, and -14.6pct month-on-month.

The growth of coal and electricity has an integrated layout, and high dividends highlight investment value

(1) The company has irrevocable acquisition rights for many of the Group's coal mine resources: the company has 5 coal mines with an approved coal production capacity of 10.95 million tons/year, and the company has irrevocable acquisition rights for many of the Group's coal mine resources. As of 2024H1, the asset securitization rate of the North Anhui Coal and Power Group reached 44.7%. In the future, the company is expected to continue to expand the scale of the company's coal business through asset injection within the group. (2) The installed scale of electricity is expected to continue to expand: By the end of 2023, the company's thermal power installation scale is 1466 MW, the equity scale is 550 MW. The former Qianyingzi Power Generation Company Phase II 1000MW thermal power project is under construction and is expected to be completed by the end of 2024. The first phase of the 300MW wind power project is under construction and is expected to be completed by the end of 2025. It is expected that by the end of 2025, the installed scale of the company's power business will increase to 2766 MW compared to the end of 2023. It increased 89%, and the installed equity capacity was 1188MW, an increase of 116% compared to the end of 2023. (3) The company's high dividend can be expected in the future: In recent years, the company's overall dividend level is on the rise. In 2023, the company's cash dividend was 1.02 billion yuan, and the dividend ratio reached 50.1%, up 17.51pct from the 2017 dividend ratio. In the future, the company's capital expenditure is expected to be manageable, coal production capacity still has room to grow, and the scale of electricity installed is expected to double. The company's profitability is expected to increase steadily, and push the company's dividend level to further increase.

Risk warning: Economic growth fell short of expectations, coal prices fell beyond expectations, and project construction fell short of expectations.