An energy giant with a full upstream and downstream coal industry chain layout, the coal business has outstanding competitive advantages. (1) The actual controller of the company is the State Council's State-owned Assets Administration Commission, which has the background of a state-owned central enterprise. As of the end of 2023, the National Energy Group's shareholding ratio was 69.52%; (2) the company produced 0.325 billion tons of coal in 2023, ranking first among listed coal companies; (3) the company's own coal production cost is 179 yuan/ton in 2023, which is the lowest level of listed coal companies; (4) The company is deeply involved in the upstream and downstream coal industry chains. The coal, electricity, transportation and coal chemical businesses accounted for 64% of revenue in 2023, respectively 22%, 13%, and 1% accounted for 72%, 12%, 16%, and 1% of profits, respectively.

The company's share of Changxie coal is high, and the impact of falling coal prices on the company's profits is limited. (1) The company's sales volume of Changxie coal in 2023 accounted for 79.5% of the total sales volume of self-produced coal; (2) According to the port Changxie Index pricing formula, the impact of spot price on Changxie price was 5%-14%, the spot price fell by 100 yuan/ton, and the long-term price only decreased by 5-14 yuan/ton; (3) According to the actual situation, the company's 2023 Changxie sales price was 500 yuan/ton, down 15 yuan/ton year on year. (4) According to the development and development committee release, the price of Changxie was reduced by 15 yuan/ton. Of According to the “Notice on Accomplishing the Work of Signing and Fulfilling Medium- and Long-Term Electricity and Coal Contracts in 2024”, the coal companies' long-term cooperation tasks should not be less than 80% of their own resources.

The company's profits and dividends are guaranteed. (1) We believe that coal supply and demand will still maintain a basic balance in 2024, and the port price (5,500 kcal) will remain above 800 yuan/ton under the support of marginal factors (Xinjiang coal export, Changxie price); (2) According to research by the Guoneng Group Institute of Technology and Economics, coal demand will peak in 2028, and the peak platform period will be 2029-2037. The company's production and sales volume is guaranteed on this basis; (3) The company's dividend ratio will always be greater than 70% from 2020, and the dividend ratio in 2023 is 75%. The dividend ratio is expected to increase further; (4) In a context where production and sales volume, price, and dividend ratio are all guaranteed, the company's profits and dividends are guaranteed for the next few years.

Profit forecasting, valuation and ratings: We believe that China Shenhua, as a comprehensive energy leader, has the characteristics of steady profit, outstanding scale advantage, and integrated operation. We expect the company's net profit to be 58.38 billion yuan, 60.83 billion yuan, and 63.81 billion yuan in 2024-2026, equivalent to EPS of 2.94 yuan, 3.06 yuan, and 3.21 yuan. The current stock price corresponds to PE of 14, 14, and 13 times, giving it an “gain” rating for the first time.

Risk warning: The economy stalled and declined; the government further regulated commodity prices; the company's capacity utilization rate fell short of expectations; the sharp drop in overseas coal prices led to a drop in the company's coal sales price.