Description of the event

The company released its 2024 three-quarter report: 2024Q1-3, the company achieved net profit of 46.074 billion yuan (-4.55%); 2024Q3 achieved net profit to mother of 16.57 billion yuan, +1.58 billion yuan (+10.54%) year on year, and +2.95 billion yuan (+21.66%) month on month.

Incident comments

The three-quarter report's month-on-month increase was mainly due to a drop in the cost of tons of coal and a high increase in electricity consumption. Take a look at it specifically:

Coal: Production remained stable in Q3, and sales volume was +3%. The cost of self-produced coal fell more or less, and the gross profit of coal improved significantly from month to month. 1) Single quarter: 24Q3 sales increase & open pit mine divestment volume and repair costs reduced, resulting in a significant decline in costs. In 24Q3, commercial coal production was 81.2 million tons, -0.1 million tons (-0.1%), -0.7 million tons (-1%) month-on-month (-1%), commercial coal sales were 115.6 million tons, +1 million tons (+1%) year-on-year, and +3 million tons (+3%) month-on-month (+3%). The price of a ton of self-produced coal in 24Q3 was 528 yuan/ton, +7 yuan/ton (+1%) year over year, and -4 yuan/ton (-1%) month over month. The sales cost of self-produced coal in 24Q3 was 283 yuan/ton, -34 yuan/ton (-11%) year-on-year, and -37 yuan/ton (-11%) month-on-month. The cost reduction is mainly due to a decrease in the amount of divestment in some open pit mines and a decrease in repair costs due to changes in maintenance arrangements. In the end, 24Q3 coal gross profit margin was 31%, +3.7pct year over year, and +3.5pct month-on-month. 2) First three quarters: Higher sales volume hedged the impact of lower coal prices in the first three quarters. 24Q1-3, the company achieved commercial coal production of 244.4 million tons, +2.4 million tons (+1%) year on year, and commercial coal sales volume of 345.3 million tons, +12.8 million tons (+4%) year on year. From 24Q1 to 3, the price of self-produced tons of coal was 531 yuan/ton, -16 yuan/ton (-3%) year-on-year. The sales cost of self-produced coal from 24Q1 to 3 was 300 yuan/ton, compared with -5 yuan/ton (-2%) compared to the previous year. In the end, 24Q1-3 coal's gross profit margin was 29%, or -1pct.

Electricity: In peak season, power generation improved significantly month-on-month, and electricity business profits increased month-on-month. 1) Single third quarter: High increase in power generation during peak season. Benefiting from the increase in demand for power generation during the peak season, the electricity generation/sales volume in 24Q3 was 64.1/60.4 billion kilowatt-hours, respectively, +14%/+15% year over year, and +32% month on month. Although the price of electricity fell slightly in Q3, the cost of electricity also declined, leading to a slight increase of 3% in the gross profit of electricity over the previous month. 2) First three quarters: Power generation capacity increased due to the commissioning of new units, but power business profits declined due to a decline in gross margin of the power business. The amount of electricity generated and sold by the 24Q1 to 3 company was 168.1/158.3 billion kilowatt-hours, respectively; however, due to falling electricity revenue combined with increased raw materials & labor costs, and increased depreciation after new units were put into operation, the gross margin of the power business in the first three quarters was -2pct to 15.9% year over year.

Transportation: 1) In the third quarter of a single year, railway turnover and port freight volume all declined month-on-month, but since the decline in costs was greater than the decline in revenue, it had little impact on performance; shipping turnover and gross margin increased month-on-month.

2) In the first three quarters, railway/port/shipping gross margins were +0.1 pct/-2.3 pct/+3.4 pct, respectively. Railway transportation turnover/Huanghua Port & Tianjin Port shipping/shipping turnover was +3 pct/+3 pct/-4 pct compared to the same period.

Coal chemicals: 1) In the third quarter of a single year, olefin sales increased sharply from month to month, but costs also increased significantly, so the performance of the coal chemical industry did not change much. 2) In the first three quarters, due to the decline in production and sales due to maintenance of olefin equipment, the gross profit of the coal chemical business declined year-on-year.

Investment suggestions: Considering that the company's Xinjie 1 & 2 Well total 16 million tons/year construction project is expected to be put into operation in 27 to 28 years, the coal power project under construction is gradually being implemented, the 0.75 million ton/year coal-to-olefin project started, the Shenshuo Railway 0.3 billion ton capacity expansion project, and the Shuhuang Railway 0.45 billion ton capacity expansion project is progressing steadily, so the company can be expected to grow in the medium to long term. The company's 2024-2026 performance is expected to be 58.6/59/59.7 billion yuan, with PE 13.6x/13.5x/13.4x respectively corresponding to the closing price on November 15, and the dividend rates will be 5.5%/5.6%/5.6%, respectively, based on a 75% dividend ratio for 2023, maintaining a “buy” rating.

Risk warning

1. Economic pressure affects downstream demand risk; 2. There is a risk of unseasonal decline in coal prices or the coal sector due to external factors.