According to the Securities Times app, Open Source Securities released a research report stating that in the first three quarters of 2024, the overall center of coal prices moved downwards, putting pressure on coal prices and leading to a decline in the profitability of coal enterprises. Non-core and volume-driven contributions in 2024Q3 have improved the performance of coal companies. Currently, both thermal coal and coking coal prices are at low levels. With the continuous improvement in the supply and demand fundamentals, both types of coal will continue to have upward elasticity, with significant room for growth. In the current slow economic recovery and low interest rate environment, funds pay more attention to the certainty of investment returns. Coal high dividends and sustainability are in line with fund allocation preferences. The coal sector is expected to usher in a new layout starting point.

The major viewpoints of Open source Securities are as follows:

In the first three quarters of 2024, the overall center of coal prices moved downwards.

Looking at different coal types, in the first three quarters of 2024, the average price of Qinhuangdao thermal coal produced in Shanxi (Q5500) was 866 yuan/ton, down 10.6% year-on-year. The average price of Q3 thermal coal was 848 yuan/ton, unchanged from the previous period. In the first three quarters of 2024, the average price of main coking coal (produced in Shanxi) at Jingtang Port was 2133 yuan/ton, down 2.7% year-on-year. In 2024Q3, the price of main coking coal continued to fall, with an average price of 1894 yuan/ton, down by 9.5% from the previous period.

The pressure on coal prices in the first three quarters of 2024 led to a decline in the profitability of coal enterprises.

In the first three quarters of 2024, 21 disclosed coal enterprises had a total coal production of 0.816 billion tons, down by 0.3% year-on-year; coal sales volume was 0.779 billion tons, down by 2.1% year-on-year. Among the 28 coal listed companies (excluding Shanxi Coking Coal and Shanxi Meijin Energy), the total revenue in the first three quarters of 2024 was 987.4 billion yuan, down by 7.4% year-on-year; the total net income was 155.8 billion yuan, down by 18.2% year-on-year; the total attributable net profit was 122.5 billion yuan, down by 19.7% year-on-year. Excluding China Shenhua, which has a significant impact on the industry, the total revenue of the 27 coal listed companies in the first three quarters of 2024 was 733.5 billion yuan, down by 9.9% year-on-year; net income of 102 billion yuan, down by 24.0% year-on-year; total attributable net profit of 76.4 billion yuan, down by 26.7% year-on-year.

In 2024 Q3, non-operating income and volume contributed to the improvement of coal enterprises' performance compared to the previous quarter.

28 listed coal companies achieved a total revenue of 330.2 billion yuan in 2024 Q3, up 0.9% quarter-on-quarter; net profit attributable to shareholders was 40.5 billion yuan, a 2.9% increase quarter-on-quarter; adjusted net profit attributable to shareholders was 40 billion yuan, down 7.0% quarter-on-quarter. Excluding China Shenhua, 27 listed coal companies achieved a total revenue of 244.4 billion yuan in 2024 Q3, down 0.9% quarter-on-quarter; net profit attributable to shareholders was 23.9 billion yuan, down 7.0% quarter-on-quarter; adjusted net profit attributable to shareholders was 23.4 billion yuan, down 16.8% quarter-on-quarter.

Overall, the average mining capacity utilization rate of coal mines in Shanxi, Shaanxi, and Inner Mongolia in 2024 Q3 was 82.1%, a year-on-year increase of 0.2 percentage points and a quarter-on-quarter increase of 0.4 percentage points. As the opening level of coal mines improved, the contribution of coal enterprise supply improvement and non-operating gains mainly drove profit growth. Despite thermal coal prices remaining stable, factors such as rising costs for coal enterprises and declining coking coal prices hampered the overall performance in the third quarter.

The coal golden age 2.0, core coal assets are expected to rise again.

The investment logic of coal stock cycle resilience will be reinforced by positive macroeconomic policies. Currently, both thermal coal and coking coal prices are at low levels. With the continuous improvement in supply-demand fundamentals, both types of coal will still have upward resilience, with significant room for growth. Thermal coal has interval elasticity while coking coal has full elasticity. An inherent cyclic elasticity property will attract cyclic capital to favor coal stocks. The investment logic of high dividend coal stocks will reflect core value based on current fundamentals.

In the current slow economic recovery and low-interest-rate environment, funds are more focused on the certainty of investment returns. Coal high-dividend and sustainability align with fund allocation preferences. According to the bank's report released on July 25, 2024, 'Coal Golden Age 2.0, transitioning to reasonable and sustainable high profitability,' most coal companies still have high dividend yields below the profit level in 2024. The coal sector is expected to begin a new layout:

First, positive macroeconomic policies and support from the capital markets. Since September 24, senior officials have continuously introduced policies to stabilize growth, lower reserve requirements and interest rates, and strengthen support for real estate, with intensity and frequency higher than before. They also emphasize the importance of capital markets and policy support.

Second, high dividends and multiple bonuses have become a trend. After the release of the 2024 interim reports, 7 listed coal companies announced interim dividend plans (Yankuang Energy, Shaanxi Coal Industry, Inner Mongolia Dian Tou Energy, Jizhong Energy Resources, Shanghai Datun Energy Resources, China Coal Energy, and Liaoning Energy Industry), compared to 2023 when no coal companies implemented interim dividends, and only 4 companies implemented interim dividends in the past 5 years. This highlights the promoting effect of the 2024 central enterprise market value management reform on dividend policies. As a key area of state-owned assets, the coal sector has actively responded to policy calls and is moving from central enterprises to local state-owned enterprises. The future dividend ratio and frequency are expected to continue to increase, emphasizing the high dividends and investment value of the coal sector.

Thirdly, the entry of industrial capital indicates that the market bottom is approaching. Since July 2024, the sector has experienced a significant pullback, with Guanghui Energy, Yankuang Energy, and others successively disclosing shareholding plans, possibly indicating that industrial capital recognizes the current sector value bottom. The cost of shareholding is significantly lower than that of primary market purchases or secondary asset injections. Reviewing the historical performance after shareholders' shareholding, the probability of subsequent stock price increase may be significantly higher.

Selective coal sector stocks in four main themes will achieve excess returns:

Theme One, cyclic elasticity logic: Metallurgical coal elastic beneficiary symbols include Pingdingshan Tianan Coal Mining (601666.SH), Huaibei Mining Holdings (600985.SH), Shanxi Lu'an Environmental Energy Development Co., Ltd (601699.SH), Shanxi Coking Coal Energy Group (000983.SZ), thermal coal elastic beneficiary symbols include Guanghui Energy (600256.SH), Yankuang Energy (600188.SH), Jinneng Holding Shanxi Coal Industry (601001.SH), Shanxi Coal International Energy Group (600546.SH);

Theme Two, stable dividend logic: High dividend and potential beneficiary symbols include China Shenhua Energy (601088.SH), China Coal Energy (601898.SH), Shaanxi Coal Industry (601225.SH), China Coal Xinji Energy (601918.SH);

Theme Three, net assets per share (PB<1) restoration logic: Shanghai Datun Energy Resources (600508.SH), Wintime Energy (600157.SH), Gansu Energy Chemical (000552.SZ), Shanxi Lanhua Sci-Tech Venture (600123.SH);

Theme Four, private enterprise credit qualification restoration logic: Guanghui Energy (600256.SH), Wintime Energy (600157.SH).

Risk Warning: Economic growth lower than expected; new energy substitution risk; significant energy price decline, etc.