On August 24, 2023, Shanghai Energy released its semi-annual report for 2023:

In the first half of 2023, the company achieved operating income of 5.867 billion yuan, a year-on-year decrease of 13.4%; net profit to the mother was 11.

8 billion yuan, down 23.7% year on year; net profit not attributable to parent was 1,175 million yuan, down 23.8% year on year; basic earnings per share were 1.63 yuan, down 23.8% year on year; weighted average ROE was 9.4%, down 4.28 pct year on year.

2023Q2 achieved operating income of 2,725 million yuan, a year-on-year decrease of 25.3%, a year-on-year decrease of 13.3%; net profit of 344 million yuan, a year-on-year decrease of 55.0%, a year-on-year decrease of 58.8%; net profit of non-attributable income of 340 million yuan, a year-on-year decrease of 55.4%, a year-on-year decrease of 59.3%; and earnings per share of 0.48 yuan, a year-on-year decrease of 54.7%, and a year-on-year decrease of 58.6%.

Coal business: falling coal prices, rising costs, declining performance

In terms of production and sales, in the first half of 2023, the company achieved raw coal production of 4.2346 million tons, an increase of 1.28% over the previous year; the output of washed coal was 2.1349 million tons, a year-on-year decrease of 15.92%. Commercial coal sales (export) were 3.05554 million tons, an increase of 1.46% over the previous year. On a quarterly basis, 2023Q2 raw coal production was 2.1414 million tons (-1.66% year on year, +2.30% month on month); washed coal production was 1,040,800 tons (-18.86% year on year, -4.87% month on month). Commercial coal (export) sales volume 144.

970,000 tons (-13.79% YoY, -9.72% YoY). Production and export sales both increased year-on-year in the first half of the year, while refined coal production declined year-on-year.

In terms of price and cost, the average sales price of commercial coal (export) in the first half of the year was 1280.18 yuan/ton, down 19.72% year on year; the sales cost of commercial coal (export) tonnes of coal was 599.66 yuan/ton, up 2.05% year on year; gross profit of commercial coal (export) tonnes of coal was 680.52 yuan/ton, down 32.42% year on year; commercial coal (export) gross margin reached 53.16%, down 9.99pct year on year. The average selling price of 2023Q2 commercial coal (export sales) is 1156.91 yuan/ton (-28.47% YoY, -16 YoY).

86%); the sales cost of commercial coal (export) tonnes of coal is 650.21 yuan/ton (YoY +11.75%, +17.36%); commercial coal (export) gross margin reached 43.8% (YoY -20.23 pct, YoY -16.39 pct). The economic recovery in the first half of the year fell short of expectations. The decline in coal prices and the increase in export costs for tons of coal led to a decline in profitability.

Electricity and aluminum products business: marginal improvement in profitability. In the first half of 2023, the company achieved 1,752 million kilowatts of electricity generation, an increase of 29.01% over the previous year, and the power business achieved sales revenue of 1,062 million yuan, an increase of 14.10% over the previous year; net profit was 60 million yuan, an increase of 131.86% over the previous year. The company achieved an aluminum processing volume of 47,200 tons, an increase of 1.07% over the previous year; the aluminum products business achieved sales revenue of 850 million yuan, a year-on-year decrease of 12.29%; a net loss of 109 million yuan, an increase of 53.72% over the previous year.

Profit forecast, valuation and investment rating: Considering the decline in coal prices, we have revised our profit forecast. We expect operating income from 2023-2025 to be 121.59, 133.59, and 14.58 billion yuan respectively; realized net profit is 1,831, 20.83 billion yuan, 2,363 billion yuan (the original forecast values for 2023-2024 were 31.94 billion yuan, 3.378 billion yuan), earnings per share are 2.53, 2.88, 3.27 yuan respectively. The current stock price is 13.33 yuan, and the corresponding PE is 5.3 X/4.6X/ 4.1X, maintain “buy”

ratings.

Risk warning: The risk that coal prices will fall beyond expectations, the risk that the progress of mines under construction and nuclear augmentation will fall short of expectations, the risk of a sharp rise in coal chemical costs, and the risk that information and data used in research reports will not be updated in a timely manner.