Main points of investment
Homecoming net profit rose 59 per cent in the first half of 2018, but second-quarter results fell 23 per cent from the previous quarter. The company's operating income in the first half of 2018 was 3.42 billion yuan, up 11.90% from the same period last year, and its net profit was 603 million yuan, an increase of 58.96% over the same period last year. The EPS is 0.83 yuan (+ 59.62% compared with the same period last year), and the net profit after deducting Fei is 607 million yuan, an increase of 67.40% over the same period last year. The company's net profit in the second quarter was 262 million, down 22.93% from the previous quarter. The main reason for the decline was that coal sales and selling prices fell by 7.69% and 2.48%, respectively.
Raw coal production fell 4.37% year-on-year, coal prices rose 10.64%, and the coal sector contributed 82% to revenue. The company produced 3.9612 million tons of coal in the first half of 2018 (year-on-year change + 1.48%), of which the output of raw coal / washing coal was 1.1766 million / 2.7846 million tons respectively, with year-on-year changes of-4.37% and 4.17% respectively, and coal sales of 2.8221 million tons, + 1.34% year-on-year. In the first half of the year, the sales price of coal was 970.44 yuan (year-on-year change + 10.64%), and the sales cost per ton of coal was 468.03 yuan (year-on-year change + 2.48%). The gross profit margin of the coal business was 51.77%, an increase of 8.01% over the same period last year. The company's sales revenue from raw coal and coal washing totaled 2.739 billion yuan, accounting for 82.48% of the company's main business income. In the first half of the year, the total volume of railway freight transport was 7.0325 million tons and the production and repair of equipment was 8300 tons. The five holding subsidiaries made a cumulative net profit of 223 million yuan in the first half of the year, of which Datun Trading Company made a profit of 259 million yuan, while the other subsidiaries all suffered small losses.
Electricity generation fell by 10 per cent and revenue from aluminum processing soared by 45 per cent. The power generation of the company in the first half of 2018 was 1.052 billion kilowatt-hours, down 9.85% from the same period last year. The unit electricity price is 0.25 yuan per kilowatt-hour (- 0.35% compared with the same period last year), and the contribution of the power sector to revenue dropped from 9.82% to 7.85%. Aluminum processing business achieved operating income of 258 million yuan (year-on-year + 45.33%), aluminum processing volume of 16000 tons (year-on-year + 39.13%), and the contribution of aluminum processing plate to revenue was 7.76% (up 1.76pct over the same period last year). The company plans to increase its aluminum processing business target to 38000 tons in 2018, more than 50% higher than the annual output in 2017. we speculate that aluminum prices are expected to come out of the trough, and the company's production costs have economies of scale, which can reverse the cash flow pressure to some extent.
The future focus of the company: Xinjiang coal mine resources to be developed, coal and power industry chain to be further consolidated. The company has two coal resources in Xinjiang and plans to build 106coal mines (with a production capacity of 1.8 million tons) and Weizigou coal mines (with a production capacity of 2.4 million tons). At present, the licenses of the two projects are still under processing and are expected to increase the company's coal mine production capacity in the long term. In terms of power sector, the Datun 2 × 350MW coal gangue cogeneration project under construction by the company is currently in the middle of construction, and after it is completed in the future, it is expected to further strengthen the coal-power integration industry chain.
Risk hint. The price of coal and aluminum products is greatly affected by the market, and the aluminum business continues to lose money.
Profit forecast and valuation. Considering that the company is close to the place of coal consumption, and the asset impairment loss is expected to decrease significantly in the next few years, we maintain the company's forecast of EPS to 1.51 P/E8/7/7x from 2018 to 2020, and the current price is 11.09 yuan, corresponding to the 20-year P/E8/7/7x. Give the company a target price of 15.10 yuan, corresponding to the 2018 P/E10x, and maintain a "buy" rating.
