Some thoughts on coal-power co-operation and new energy: The company is a typical coal-power joint venture. It also has electricity and upstream and downstream coal assets, and is linked in business. Basically, all of the coal supply to the controlling power plant is provided by wholly owned coal mines, and plans to continue to build the power plant, close its own coal sales exposure, and achieve a complete connection between coal and electricity assets. The market has a certain understanding of the company's strengths, but the perception is not comprehensive. We believe that the company's value is mainly reflected in the following two aspects.

The significance of coal-power joint ventures: recycling concessions, long-term improvement: The company's coal-power joint ventures are quite special. Currently, other coal-power joint ventures on the market either only control the coal and electricity business at the same time and have not formed a business linkage; or they have built the Kengkou Power Plant to form a joint venture, but due to poor geographical location, the power plant's profit is weak, which has become a drag on coal assets. The company's coal and electricity joint venture assets are at the center of the load. Coal prices in the local market are high and supply and demand are tight. Electricity prices for power plants are significantly higher than in major inland coal-producing provinces, and most of the commercial coal produced is sold in the form of long-term cooperation, which has yielded downstream concessions to a certain extent. The company invests in power plants and closes coal exposure, which is a means of recycling concessions. Furthermore, in the context of dual carbon, coal mines have clear risks in the medium to long term, and coal-power joint ventures are expected to raise long-term operating expectations for their assets under the dual consideration of medium- to long-term carbon peaks and energy safety backgrounds, and are also expected to achieve the landing and regeneration of mines proposed by the company and included in the production capacity list.

The supply and demand and coal price situation at load centers are expected to keep power plant profits high: Anhui Province is located in the load center area of East China, and due to the fact that the province has coal, it was defined as an energy base in East China for a long time, and has built the “Eastern Anhui Electric Transmission” transmission project, which “bears” the task of supplying electricity to the entire East China region. In an environment where overall supply and demand in East China is tight, electricity consumption load has repeatedly reached new highs in recent years, all aspects of thermal power are marketed, and electricity prices are allowed to rise 20% from the benchmark price, electricity prices in East China have always been at a high level. Due to strong demand, Anhui Province is one of the few provinces in China that has abundant coal resources but still needs to be transferred to coal, and in the current Changxie environment, multi-track coal prices have emerged. The different prices of local cooperatives and foreign coals have created very different profitability for local power plants. With the support of marginal power plants, joint power plants are expected to maintain their high profitability for a long time.

Profit forecast and valuation: The company is expected to achieve an EPS of 0.93/1.01/1.36 yuan in 2024-2026, corresponding to the November 22 PE of 8.00/7.33/5.48 times, and the corresponding PB of 1.23/1.08/0.93 times, giving the company a “highly recommended” rating.

Risk warning: risk of uncertainty in downstream demand, risk of falling coal and electricity prices, risk of planned project progress falling short of expectations, risk that profit forecasting assumptions are untrue or falling short of expectations.