Introduction to this report:

Results are in line with expectations. Q3 production was affected by a month-on-month decline due to safety inspections. Production is expected to gradually recover in the fourth quarter. By acquiring the majority shareholders' power assets, the power business is expected to enrich the company's revenue composition.

Key points of investment:

Maintain an “Overweight” rating. The company announced that it achieved revenue of 125.427 billion yuan/ -1.57% in the first three quarters; net profit to mother of 15.943 billion yuan/ -1.46%. Among them, Q3 revenue was 40.69 billion yuan/ +10.66%; net profit to mother was 5.387 billion yuan/ +17.1%, in line with market expectations. We maintain the company's 24-26 EPS forecast of $2.28/2.59/2.65. According to the comparable company's 2024 average valuation of 12.91xPE, the target price was raised to 29.39 (+1.23) yuan.

Coal production declined month-on-month due to safety inspections, leading to a month-on-month decline in profitability. The company achieved coal production of 41.365 million tons in Q3, an increase of 2.9% year on year; achieved coal sales of 64.4 million tons, an increase of 2.3% year on year, of which sales of self-produced coal were 40.61 million tons, an increase of 2.3% year on year.

However, from a month-on-month perspective, there was a clear decline, with raw coal production falling 8% month-on-month. Q3 The price of the company's own coal production was 510 yuan/ton, down about 27 yuan/ton from month to month. We determined that it was mainly due to some changes in product structure, etc., while the cost of tons was affected by the decline in production. The unit cost increased by 12 yuan/ton to 290 yuan/ton from month to month, and the gross profit of self-produced coal tons decreased by 38 yuan/ton to 220 yuan/ton from month to month.

Salt Lake Co., Ltd. began to include long-term equity investments in Q3, and investment returns increased. We believe that Salt Lake Co., Ltd. passed the board of directors to the long-term equity law in June to include long-term equity investment. The investment income was reflected in the reporting accounts. The Q3 company's investment income increased 0.145 billion to 0.829 billion yuan over the previous year, an increase of nearly 0.3 billion yuan over the previous year. At the same time, the A-share market performed well in late September, which also drove the company's fair value to continue to achieve a profit of 0.188 billion in a single quarter in Q3.

By purchasing the majority shareholders' power assets, the power business is expected to enrich the company's revenue composition. In September, the company announced that it plans to acquire all of the shares of Shaanxi Coal Electric Power Group held by Shaanxi Coal Group. After the acquisition is completed, the company will increase power assets from its current main coal business, which will help the company further reduce related transactions, increase operating income, extend the main coal industry chain, and promote the company's high-quality development. As of September 30, 2024, the company's cash receipts+transactional financial assets were 44.829 billion, and the net operating cash flow was 34.7 billion, an increase of 6 billion over the previous year, and greatly surpassed net profit; the balance ratio remained low at 34.29%, down 4 percentage points from the previous year. The company increased mid-term dividends in response to policy calls in 2024, and is expected to continue to maintain a high dividend rate of 60% throughout the year.

Risk warning: coal prices fell beyond expectations; macroeconomic recovery fell short of expectations