Matters:

The company released its 2024 three-quarter report. 2024Q1-3 achieved revenue of 125.43 billion yuan, -1.6% year on year; realized net profit of 15.94 billion yuan, -1.5% year on year; realized net profit of 16.35 billion yuan without return to mother, -13.9% year on year, of which Q3 achieved revenue of 40.69 billion yuan, +10.7%/-8.1% year over month; net profit to mother of 5.39 billion yuan, year-on-year, respectively 17.1%/-8.8%; realized net profit without return to mother of 5.17 billion yuan, -3.7%/-11.4% year-on-year, respectively.

Commentary:

Q3 Production and sales of self-produced coal declined month-on-month. Sales revenue per ton of coal in the first three quarters of 2024 was 618.3 yuan, with coal production and sales volumes of 127.77 million tons/195.95 million tons respectively, +2.82%/+5.09% year-on-year, of which Q3 single quarter production/self-produced coal sales volume was 41.367/40.611 million tons, -8.0%/-8.7% month-on-month. In previous years, Q4 was a period of high incidence of coal mine safety accidents. Increased production site safety supervision led to a decline in Q3's coal production and sales. Further split, the price of 2024Q1-3's coal per ton was 618.3 yuan, -6.2% year-on-year, with a sales cost of 403.7 yuan per ton, -2.5% year-on-year, and gross profit of 214.7 yuan per ton, or -12.6% year-on-year, narrowing gross profit.

Coal prices fell first and then rose in the third quarter, and there may be limited fluctuations in coal prices during the year. Coal prices remained stable in July. After August, due to the continued slump in terminal demand, combined with the continuous decline in port prices, the price drop was significant. Demand for heating began in mid-September, demand for power plant restocking was released, compounded by favorable maintenance in Qin to drive a rebound in prices. According to Wind data, coal prices in Kengkou, Yulin, Shaanxi were -0.91% month-on-month in the third quarter. Looking ahead to the fourth quarter, thermal coal prices may operate smoothly. Abundant inventory levels of downstream power plants on the demand side suppress peak winter demand to a certain extent, and the supply side is close to the end of the year or maintenance increases, and production releases are limited.

With the transfer of Shaanxi Coal and Electricity, the asset attributes of low-wave dividends were further strengthened. On September 6, 2024, the company announced that its primary controlling shareholder, Shaanxi Coal Group signed an agreement of intent with the company. Shaanxi Coal Group plans to transfer all of its shares in Shaanxi Coal Electric Power Group Co., Ltd. to the Shaanxi Coal Industry. As the main business entity in the power generation sector of Shaanxi Coal Group, Shaanxi Coal Electric Power has rich experience and technical accumulation in power projects. According to the official website data as of November 6, 2024, the total installed thermal power generation capacity is 24.89 million kilowatts and 13.04 million kilowatts of equity installed capacity. The company's holding of Shaanxi Coal and Electric Power will be a powerful measure to build “coal and electricity integration”, further enhancing the company's performance, forming a complete industrial chain of coal mining, washing, transportation, and sales to electricity production, and the company's profit stability will improve markedly; based on Wind's consensus expectations for 2024 and a 60% dividend ratio, the company's dividend rate is currently about 5.4%.

Investment advice: Considering the company's performance in the first three quarters and production capacity, we adjusted the company's net profit forecast for 2024-2026 to 22.282/23.478/24.734 billion, corresponding to the current PE of 11x/10x/10x, respectively. Considering comparable company valuations and company asset injection expectations, the company was given 12 times PE in 2025, corresponding to a target price of 29.04 yuan, to maintain a “strong” rating.

Risk warning: The coal price supply and demand pattern deteriorates, equity investment returns fluctuate, and capacity development falls short of expectations