Incidents:

On October 9, the company announced that it plans to inject the three coal mine shares held by the group into listed companies. Recently, the chairman of Meijin Energy said in an interview that if it goes well, it is expected that the 3 coal mines will be injected next year, and further negotiations will be completed and listed in the future. The company's asset injection work continues to advance.

On October 29, Meijin Energy released its report for the third quarter of 2024: In the first three quarters of 2024, the company achieved operating income of 14.37 billion yuan, -3.2% year on year, net profit attributable to shareholders of listed companies -0.65 billion yuan, -261% year on year, and net profit attributable to shareholders of listed companies - -0.67 billion yuan, or -277% year on year.

On a quarterly basis, in the third quarter of 2024, the company achieved operating income of 5.56 billion yuan, +20% month-on-month and +9%; net profit to mother of 0.03 billion yuan, reversal of losses month-on-month, -15% year-on-year, and 0.02 billion yuan net profit after deducting net profit from mother to mother, reversing losses month-on-month, and -34% year-on-year.

Investment highlights:

The significant month-on-month increase in revenue in the third quarter and turning a loss into a profit may be related to an increase in production, while the company's management expenses fell significantly month-on-month (from 0.306 billion yuan in Q2 to 0.172 billion yuan in Q3).

Q3 production may recover month-on-month, and Q4 coke prices have risen, and performance is expected to continue to improve. Q3 coal production in Shanxi increased significantly compared to Q2. Production in a single quarter was +8% month-on-month, and the company's production may also have recovered. Furthermore, since Q4 (as of November 5), the price of quasi-grade metallurgical coke in Shanxi has risen slightly month-on-month, and the company's performance is expected to continue to improve month-on-month.

Asset injection promotion. The company announced that it plans to acquire 51% of the shares in the Jinyuan Coal Mine held by Meijin Group (0.79 billion tons of identified resource reserves, high quality coking coal, under construction, with an approved extraction amount of 6 million tons/year) and Zhengwang Coal (identified resource reserves of 0.086 billion tons, currently in production, production capacity 1.2 million tons/year, with production capacity 1.2 million tons/year, coal type is high quality coking coal), and Shanxi Suyang holds 49% of the shares (Resource reserves of 0.082 billion tons have been identified, the type of coal is high-quality coking coal. Under construction, the approved extraction amount is 0.9 million tons/year) 49% equity. This asset injection will further expand the coal sector's resource reserves and strengthen the synergy of coal coke integration.

Profit forecast and investment rating: The company's 2024-2026 revenue is expected to be 19.8/23.1/26.5 billion yuan (based on prudential principles, without considering the impact of asset injection and issuance of shares), -5%/+17% +14%, and net profit to mother is -0.53/0.35/0.54 billion yuan, respectively, -283%/+165%/+57% YoY; EPS is -0.12/0.08/0.12, respectively, corresponding to the current stock price in 2025-2026 PE is 66.6/42.5 times. Considering the month-on-month improvement in the company's performance, there is room for further restoration in the future, and there are expectations of group asset injection, but considering that it may be in a state of loss throughout the year, it was covered for the first time, and a “neutral” rating was given.

Risk warning: (1) risk of downstream demand falling short of expectations; (2) risk of production safety; (3) risk of policy supervision exceeding expectations; (4) risk that asset injection progress falls short of expectations; (5) risk of data or data used in research reports not being updated in a timely manner.