The leading coal company in Shaanxi has steady performance and abundant cash flow. The company is the largest listed coal company in Shaanxi. It is backed by the Shaanxi Coal Group and enjoys a unique resource advantage. During the period when coal prices are rising, the company's profits are more flexible, and profits are steady during the period when coal prices are falling. The company's profit in 2024Q3 fell 1% year on year, and after deducting non-profit, fell 14% year on year. The decline was small in the coal industry. Financial expenses have been negative for the past three years, and the company's cash flow is abundant. From 2018 to the third quarter of 2024, the company's balance ratio continued to decline from 44.9% to 34.3%.

The resource advantage is outstanding, and the operation and management are outstanding. The company has high-quality coal resources in Shaanxi. More than 90% of the coal reserves are high-quality coal. The coal quality is excellent. It is high-quality thermal coal, gasified coal and chemical coal with ultra-low ash, ultra-low phosphorus, ultra-low sulfur, medium to high calorific value. The company has 10.4 billion tons of recoverable reserves, an approved production capacity of 0.162 billion tons, and can be mined for more than 64 years. The compound growth rate of the company's output in 2018-2023 is 8.7%, which has good growth potential. Compared with China Shenhua, China Coal Energy and Yankuang Energy, the company has excellent management. During the period of rising coal prices, the company's coal price increased greatly; during the period of price reduction, the company's coal price fell little, cost control was excellent, ROE was high, balance ratio was low, profits were relatively stable, capital expenditure was minimal, and dividends were high.

Coal prices are expected to remain stable, and high-dividend coal stocks are expected to dominate. Current inventories are close to the same period in 2023, and demand is gradually picking up during the peak winter season. Factors such as safety inspections, vacations, and bad weather at the end of the year will affect supply to a certain extent, and coal prices are expected to remain stable in winter. Total supply is expected to increase by 1.8% in 2025, with China's raw coal production increasing by 2% and zero growth in imported coal. Total demand is expected to increase by 1.7%, with demand for thermal power, coke, cement, and coal chemicals increasing by 2%, -1%, -10%, and 10% respectively.

It is expected that there will be a basic balance between coal supply and demand in 2025, and coal prices are expected to remain stable. The tariff policy and domestic policy strength between China and the US are still facing uncertainty next year, and coal stocks with steady profits and high dividends, such as the Shaanxi coal industry, are expected to dominate.

Investment suggestions: The revenue of the Shaanxi coal industry in 2024-2026 is expected to be 164.8/167.7/170.1 billion yuan, respectively, -3.6%/+1.8%/+1.5% year on year; net profit to mother for 2024-2026 is 22.1/23.1/23.7 billion yuan, respectively, +3.9%/+4.7%/+2.5% year on year; EPS is 2.28/2.38/2.44 yuan/share, respectively; corresponding PE is 10.30/9.84 /9.61 times Considering the company's outstanding resource advantages, excellent management, steady performance and high dividends, market performance is expected to be superior in the face of policy uncertainty, maintaining a “buy” rating.

Risk warning: the rise in coal prices falls short of expectations; risk of safety accidents; the commissioning of new projects falls short of expectations.