The integration of coal, electricity and aluminum transportation focuses on PB's clean-up repair and dividend potential, and gives Shanghai Energy a “buy” rating as one of the top five listed coal central enterprises. The dividend ratio has been steadily increasing in recent years, and it has actively carried out interim dividends. The company's main business is coal mining, and at the same time, it has opened up an integrated layout of coal, electricity and aluminum transportation. Among them, the coal and power businesses are growing. We expect Shanghai Energy to achieve net profit of 0.81/0.97/1.2 billion yuan in 2024-2026, or -16.3%/+19.6%/+23.2%, equivalent to EPS of 1.12/1.34/1.65 yuan/share, respectively. The current share price of PE is 12.5/10.5/8.5 times, respectively. Compared with comparable companies, Huaibei Mining, Pingmei Co., Ltd., Panjiang Energy, Shanxi Coking Coal, and Hengyuan Coal Power Company's 2024E-2026E average PE is 24.1/12.1/9.9 times, while Shanghai Energy is 12.5/10.5/8.5 times; moreover, the company's PB valuation has been broken for a long time (PB is 0.79) and is lower than the overall level of the coal sector (PB is 1.39). Measured by PB-ROE, the company's PB also has significant discounts. Value restoration can be expected in the future. First coverage, giving a “buy” rating.

The mid-term dividend has increased to give back to investors. Since this year, “China Special Valuation” high-dividend potential stocks have been introduced frequently to promote market value management of central enterprises. In August 2024, the company issued an announcement on the annual mid-term profit distribution plan. The current company's cash dividend ratio is 30.65%. Assuming that the 2024 mid-year dividend is calculated as an additional dividend for the whole year, and assuming that the dividend at the end of 2024 is the same as the dividend ratio at the end of 2023, the actual dividend ratio is expected to rise to 46.8% in 2024. In recent years, the company's balance ratio has been declining steadily. Monetary capital and undistributed profit reserves are higher than the industry average. In 2023, the company's capital expenditure was 1.13 billion yuan, while the company's monetary capital in 2023 was 3.16 billion yuan, which is enough to cover the company's capital expenditure, and there is still room for improvement in the company's dividend level.

Coal business: Coal mine growth can be expected. The profit from tons of coal is comparable. The company currently has 4 mines with an approved production capacity of 9.09 million tons/year, and also has 1 mine under construction with an annual design production capacity of 2.4 million tons/year (expected to be completed and put into operation by the end of 2025). After completion, the company's approved production capacity will reach 11.49 million tons/year (increase of 26.4%), and equity production capacity will reach 10.13 million tons (increase of 23.4%). In recent years, the company's commercial coal washing out rate has basically remained above 80%. Among them, the washing and refined coal washing rate was around 50%. In 2023, the company's refined coal washing production accounted for 64.4% of commercial coal production. The sales price of the company's tons of coal in 2023 was 1167.1 yuan/ton, which is higher than the level of comparable companies. At the same time, the company's gross profit per ton of coal in 2023 was 406.9 yuan/ton. The gross profit per ton of coal has a comparable advantage among comparable companies, showing strong profitability.

Other business: Integrated operation of coal, electricity and aluminum transportation. The industrial synergy effect is obvious. The company has a full industry chain of “power generation and supply, sales and distribution, heating, and power operation and maintenance”. The total installed capacity of power generation is 1,083 megawatts, of which the total installed capacity of thermal power generation is 820 MW, and the new energy photovoltaic project under construction is expected to be connected to the grid by the end of 2024. At that time, the installed capacity of the coal power generation company will reach 1288MW. In recent years, the amount of power generation companies has increased steadily, and the fuel board cost has decreased. Block profits continue to improve.

At the same time, the company has an annual production capacity of 0.1 million tons of aluminum processing, a self-operated railway of 181.9 kilometers, and an annual transportation capacity of 13 million tons. In addition, the company's Tote Machinery Manufacturing Plant is engaged in the manufacture and repair of coal mining machinery and equipment, with an annual equipment repair capacity of 0.018 million tons, which has obvious industrial synergy effects.

Risk warning: coal prices fell beyond expectations; domestic safety supervision situation became stricter; projects under construction fell short of expectations, etc.