Incident: Shanmei International released its 2024 third quarter report: In the first three quarters of 2024, the company achieved operating income of 21.965 billion yuan, a year-on-year decrease of 23.99%, net profit to mother was 2.082 billion yuan, a year-on-year decrease of 47.91%, and net profit to mother after deduction was 2.186 billion yuan, a decrease of 46.13% year on year. Basic earnings per share were 1.05 yuan, a year-on-year decrease of 48.02%, and the weighted average return on net assets was 12.89%, a year-on-year decrease of 13.31 pcts.

On a quarterly basis, in the third quarter of 2024, the company achieved operating income of 7.908 billion yuan, an increase of 2.68%, a year-on-year decrease of 3.84%; net profit to mother of 0.791 billion yuan, an increase of 11.82% month-on-month, a decrease of 13.56%; and net profit to mother after deduction of 0.806 billion yuan, an increase of 3.82% month-on-month and a decrease of 14.68% year-on-year.

Comment:

In terms of self-produced coal, production and sales increased sharply month-on-month in the third quarter, and cost control was effective. 1) Production and sales volume: According to the company's 2024 three-quarter report, the company's self-produced coal production in the first three quarters of 2024 was 24.503 million tons (-18.72% YoY), and the self-produced coal sales volume was 18.8208 million tons (-30.18% YoY). 2024Q3, the company's self-produced coal production was 9.1218 million tons (+15.96% month-on-month, +1.81% year over year), and sales volume of self-produced coal was 6.9033 million tons (+6.93% month-on-month, -8.85% year over year). 2) Selling price and cost: The average sales price of the company's own coal in the first three quarters of 2024 was 676.52 yuan/ton (-6.38% year over year); the average sales cost of the company's own coal was 292.78 yuan/ton (+4.36% year over year). 2024Q3, the average sales price of the company's own coal was 660.30 yuan/ton (-6.46% month-on-month, +3.08% year-on-year); the average sales cost of the company's own coal was 268.33 yuan/ton (-12.23% month-on-month, -5.83% year-on-year). 3) Profit: In the first three quarters of 2024, self-produced coal achieved gross profit of 383.74 yuan/ton of coal (-9.65% YoY). 2024Q3, the gross profit per ton of coal produced from self-produced coal was 391.97 yuan/ton (-2.05% month-on-month, +10.22% year-on-year).

Overall, in the first three quarters of 2024, the company's coal production business achieved revenue of 12.733 billion yuan (-33.03% YoY), operating costs of 5.51 billion yuan (-27.14% YoY), gross profit of 7.222 billion yuan (YoY -36.92%), and gross margin of 56.72% (YoY -3.50pct).

In terms of coal trade, trade volume increased year-on-year in the third quarter, and gross profit per ton of coal improved month-on-month. 1) Production and sales volume: According to the company's 2024 three-quarter report, the company's trade coal sales volume in the first three quarters of 2024 was 14.2892 million tons (+14.72% year-on-year). 2024Q3, the company's trade coal sales volume was 5.3758 million tons (+5.82% month-on-month, +9.99% year-on-year). 2) Price and cost: The average sales price of the company's traded coal in the first three quarters of 2024 was 615.41 yuan/ton (-21.00% YoY); the average sales cost of the company's traded coal was 596.49 yuan/ton (-17.34% YoY). 2024Q3, the average sales price of the company's traded coal was 597.80 yuan/ton (+1.36% month-on-month, -9.18%); the average sales cost of the company's traded coal was 578.06 yuan/ton (+0.09% month-on-month, -7.87%). 3) Profit: In the first three quarters of 2024, trade coal achieved gross profit of 18.91 yuan/ton of coal per ton (YoY -46.21%); 2024Q3, trade coal achieved gross profit of 19.74 yuan/ton of coal per ton (+61.72% month-on-month, -35.96% year-on-year).

Overall, in the first three quarters of 2024, the company's trade coal business achieved operating income of 8.794 billion yuan (-6.71% YoY), operating costs of 8.523 billion yuan (YoY -5.17%), gross profit of 0.27 billion yuan (YoY -3.8.29%), and gross margin of 3.07% (YoY -1.57pct).

Profit forecasting and investment advice. We recommend Shanmei International based on the following three aspects: 1) The company's mining area is rich in coal varieties, and has formed production bases for thermal coal, coking coal, and anthracite. 2) The company has established coal trading companies and shipping sites in major coal production sites across the country, and the coal trade business location and market advantages are remarkable.

3) The company implements a cost-leading strategy and maintains the industry's leading cost level through continuous optimization of the cost management and control system. We expect the company to achieve operating income of 30.147 billion yuan, 31.391 billion yuan, and 32,655 billion yuan in 2024-2026, net profit to mother of 2.784 billion yuan, 3.025 billion yuan and 3.259 billion yuan, EPS (diluted) of 1.40 yuan, 1.53 yuan and 1.64 yuan, with a closing price of 13.88 yuan/share on October 28, 2024, corresponding PE of 9.6x/8.8x/8.2x, maintaining the company “Overweight” rating.

Risk warning: Production safety accidents in key coal mines, downstream demand falls short of expectations, systematic decline in coal prices, stricter safety and environmental protection policies