Introduction to this report:

The main coal industry combines growth with product structure optimization; the collaborative development of the new coal chemical business provides greater resistance to cyclicality; the coal industry is leading the way, reducing costs and increasing efficiency and dividends are worth looking forward to.

Key points of investment:

Maintain profit forecasts and target prices, and increase holdings ratings. The company is a leading coal central enterprise, a leader in national reform, coal-chemical integration and collaborative development, and is more resilient to risks. Maintain the company's 2024-2026 EPS forecast of 1.51/1.59/1.70 yuan, maintain the target price of 16.42 yuan, and increase the rating.

The main coal industry combines growth with product structure optimization. We believe that the highlights of the company's coal business are not only the growth provided by the commissioning of new mines and the steady revenue due to high and long-term cooperative share, but also the increase in profitability and the decline in cost side due to product structure optimization that has been overlooked by the market. We have observed that since 2023, the company's dilution benefits have increased production through active cost control, and the cost of tons of coal has declined markedly. Looking forward to the future, the company has sufficient backup resources for coal mines. With efficient new mines being put into operation one after another, the coal product structure is continuously optimized, which is expected to lead to further optimization of profitability and costs.

The new coal chemical business develops collaboratively to provide greater resistance to cyclicality. We believe that the company's new coal chemical business is different from traditional chemicals, has accelerated the transformation and upgrading of the coal industry, uses clean energy as the main product, and is an important exploration to promote China's industrial transformation, upgrading and sustainable development. We believe that the collaborative development of the company's coal-new coal chemical industry has made the coal chemical business have an integrated cost advantage; at the same time, going back in history has also helped calm some cyclical fluctuations in the main coal industry and enhanced the company's ability to withstand risks. The Group's electricity business is ranked as the sixth largest power state-owned enterprise, and the company may be involved more in the electricity business in the future. Since 2022, China Coal Group has promoted the collaborative development of the coal power industry through the two major policies of “coal and coal power joint venture” and “coal power and new energy joint venture”. We believe that with the rapid development of the Group's power business, the company is actively promoting the Group's “two joint ventures” policy. Currently, the power sector is beginning to emerge, and it is expected that the power sector will continue to be strengthened in the future to increase long-term growth.

National reforms in the coal industry take the lead, and it is worth looking forward to reducing fees and increasing efficiency and increasing dividends. In 2024, China Coal was the first company in the coal and electricity sector to respond to the implementation of the policy with mid-term dividends. At the same time, the special dividend in 2023 broke the 30% dividend rate that the company has maintained since its listing. It is a landmark, and has become the vanguard of national reform in the coal sector. We believe that dividends exceeding expectations may only be the company's first step on the path of state-owned enterprise reform. With the large-scale asset depreciation of the company in recent years, it has shed its historical burden and gone light; it is worth looking forward to further deepening lean management and improving profitability and dividend rates under the new “one profit and five rate” requirements of the State Assets Administration Commission.

Risk warning: Coal prices fell more than expected, and production fell more than expected.