Incident: On December 6, 2024, the company issued an announcement stating that 1) The company will acquire 88.6525% of Shaanxi Coal Group's shares held by Shaanxi Coal Group in cash through a non-public agreement at a price of 15.695 billion yuan. 2) Disclose the equity distribution plan for the third quarter of 2024. It is proposed to distribute 1.03 yuan for every 10 shares, for a total cash dividend of 1 billion yuan.

The acquisition of Electric Power Group is expected to increase profits of listed companies by 6.77%, and there may be room for doubling in the long term. According to the evaluation report issued by the company, the main business of Shaanxi Coal Electric Power Group is thermal power generation, with 10 subsidiaries. Among them, the total installed capacity of coal-fired units in operation is 8,300 MW, the total installed capacity of the coal-fired units under construction is 10,000 MW. From January to October 2024, the net profit to mother was 1.358 billion yuan, and the annualized net profit to mother was 1.629 billion yuan. Considering 88.6525% equity, we estimate the profit margin of the listed company in the Shaanxi coal industry in 2024 as a basis. 6.77% Considering that the total installed capacity of the company's coal-fired units is higher than the installed capacity currently in operation, assuming that the current profit level can be maintained, the profit of the Electric Power Group is expected to double in the future after all the units under construction are put into operation.

The purchase price was 15.695 billion yuan, which is a relatively low valuation. According to the evaluation report issued by the company, the purchased power assets from January to October 2024 were 11.778 billion yuan. The purchase price corresponds to 1.5 times PB, which is lower than the average PB (1.64 times) of 29 A-share listed thermal power companies. According to the announcement, the value-added portion mainly assesses the value-added of fixed assets, intangible assets - land use rights in controlling long-term equity investment units, and the valuation appreciation of some participating long-term equity investment units. From a PE perspective, the PE corresponding to the purchase consideration is about 11 times, which is lower than the average PE (20 times) of the 29 A-share listed thermal power companies.

The frequency of the company's dividends has increased, and the characteristics of high dividends are remarkable. The equity distribution plan for the third quarter of 2024 proposes to distribute 1.03 yuan for every 10 shares, with a total cash dividend of 1 billion yuan, accounting for 6.27% of the net profit attributable to mother for the period.

Combined with the previous interim profit distribution amount, the total cash dividend amount was 2.056 billion yuan, accounting for 12.90% of the net profit attributable to shareholders of the parent company for the current period. Based on the cumulative dividend amount, the dividend rate is 0.86% (based on the stock price as of December 6, 2024). The company promises that the cash dividend for 2022 to 2024 will not be less than 60% of the distributable profit for the year. The dividend rate is 5.3% based on our forecast of the net profit of the Shaanxi coal industry in 2024.

The company's dividend rate is high, and at the same time, the frequency of dividends is extremely valuable for investment.

Investment advice: The company's resource endowment industry is leading, the cost advantage is obvious, the cash cow attribute is strong, and the long-term investment value is high. We expect the company's net profit to be 21.352/22.963/23.919 billion yuan in 2024-2026, the corresponding EPS is 2.20/2.37/2.47 yuan, respectively, and the PE corresponding to the closing price on December 6, 2024 is 11/10/10 times, respectively. Maintain a “Recommended” rating.

Risk warning: Coal prices have declined sharply; downstream demand has improved less than expected; costs have risen above expectations; the acquisition of the Group's power assets has not increased as much as expected.