The leading thermal coal company in central enterprises with sufficient reserves of resources. (1) The actual controller of the company is the State Council's State-owned Assets Administration Commission, with a state-owned central enterprise background. As of 2024Q3, China Coal Group's shareholding ratio was 57.41%; (2) The company has reserves of 26.65 billion tons and 13.87 billion tons of recoverable reserves. The company's reserves rank third among listed companies, and its recoverable reserves rank first among listed companies. Based on recoverable reserves and 2023 production, the company's average coal mining period is as high as 103 years; (3) The company focuses on the main coal industry, 2023. chemicals, Coal mining equipment and financial services accounted for 84%, 11%, 6%, and 1% of revenue, respectively, and 84%, 7%, 4%, and 3% 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 annual medium- and long-term contracts are signed according to no less than 80% of its own resources, with an annual performance rate of not less than 90%; (2) According to the port Changxie Index pricing formula, the impact of spot price on Changxie price is 5%-14%, spot price decreased by 100 yuan/ton, and Changxie price only decreased by 5-14 yuan/ton; (3) In 2024Q2, the average sales price of coal produced by the company was 508 yuan/ton, down 6 yuan/ton (-1.1%) from Q1. The average spot sales price in Hong Kong is 848 yuan /ton, down 53 yuan/ton (-5.9%) from Q1.

The company's profits and dividends are guaranteed. (1) We believe that coal supply and demand will 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 Guoneng Group Institute of Technology and Economics, China's coal demand will peak in 2028, and 2029-2037 will peak. On this basis, the company's production and sales volume is guaranteed; (3) The company will maintain a dividend ratio of 30% from 2019-2023, and the company issued a mid-term special dividend plan to pay dividends in 2024 The ratio is expected to rise 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 Coal Energy, as a leading thermal coal company, has the characteristics of steady profit and undervaluation. The company's net profit for 24-26 is 18.68, 19.54, and 20.49 billion yuan, which is equivalent to EPS of 1.41, 1.47, and 1.55 yuan respectively. The current stock price corresponds to PE of 9, 9, and 8 times, giving a “gain” rating for the first time.

Risk warning: Economic growth is declining; the government further regulates commodity prices; the company's capacity utilization rate falls short of expectations; the sharp drop in overseas coal prices has led to a drop in the company's coal sales price.