Shanghai Energy Releases 2023 Annual Report and First Quarter 2024 Report:

In 2023, the company achieved operating income of 10.978 billion yuan, a year-on-year decrease of 13.11%; net profit of 969 million yuan, a year-on-year decrease of 44.3%; net profit without return to mother of 958 million yuan, a year-on-year decrease of 35.15%; basic earnings per share of 1.34 yuan, a year-on-year decrease of 44.40%; and a weighted average ROE of 7.83%, a year-on-year decrease of 7.54 pct.

2023Q4 achieved operating income of 2,480 million yuan, down 7.70% year on year and 5.76% month on month; net profit to mother - 359 million yuan, up 5.94% year on year, down 341.26% month on month; net profit without return to mother - 3.

6.1 billion yuan, up 39.77% year on year, down 351.00% month on month; earnings per share was -0.5 yuan, up 5.66% year on year, down 338.10% month on month.

2024Q1 achieved operating income of 2.32 billion yuan, a year-on-year decrease of 26.18%, a year-on-year decrease of 6.46%; net profit to mother of 303 million yuan, a year-on-year decrease of 63.76%; and net profit after deducting non-return to mother of 300 million yuan, a decrease of 64.12% year-on-year.

Coal business: Coal prices are weakening, production is falling, and performance is under pressure.

In terms of production and sales, production of raw coal and refined coal decreased year-on-year in 2023, and foreign sales increased year-on-year. In 2023, raw coal production was achieved at 802.55 million tons, a year-on-year decrease of 1.96%; refined coal production was 4.1611 million tons, a year-on-year decrease of 9.27%.

Commercial coal sales (export sales) were 6.054 million tons, up 4.50% year on year. 2023Q4 raw coal production was 1.777,300 tons (-8.75% y/y, -11.74% month-on-month); refined coal production was 942,800 tons (+6.04% yoy, -12.98% month-on-month).

Commercial coal (export) sales volume was 1.4812 million tons (+7.70% year over year, -2.40% month over month). 2024Q1 raw coal production was 2.6675 million tons (YoY +8.33%, month-on-month +27.85%); refined coal production was 1.0714 million tons (-2.07% YoY, +13.64% month-on-month). Commercial coal (export) sales volume was 1.175,800 tons (-26.77% YoY, -20.62% YoY).

In terms of price and cost, pressure on the cost side increased, and performance was under downward pressure. In 2023, the average sales price of commercial coal (export) was 1167.15 yuan/ton, a year-on-year decrease of 23.15%; the sales cost of a ton of commercial coal (export) was 760.22 yuan/ton, an increase of 2.17%; the gross profit of commercial coal (export) tons of coal was 406.93 yuan/ton, a year-on-year decrease of 47.47%; the gross margin of commercial coal (export) reached 34.87%, a year-on-year decrease of 16.14 pcts. The average sales price of 2023Q4 commercial coal (export) was 1050.96 yuan/ton (-19.59% YoY, -0.19%); the sales cost of a ton of commercial coal (export) was 1064.81 yuan/ton (YoY +3.94%, +35.44%); the gross margin of commercial coal (export) reached -1.32% (YoY - 22.93 pct, -26.65pct month-on-month). The average sales price of 2024Q1 commercial coal (export) was 1196.09 yuan/ton (-14.04%, month-on-month +13.81%); the sales cost of a ton of commercial coal (export) was 680.57 yuan/ton (+22.84% YoY, -36.09%); the gross margin of commercial coal (export) reached 43.01% (YoY -17.08pct, month-on-month +44.42pct).

Electricity and aluminum products business: Production increased year-on-year in 2023, and profit improved marginally. In 2023, the company achieved power generation capacity of 3.73 billion kilowatts, a year-on-year increase of 24.47%. The power business achieved sales revenue of 1,285 billion yuan, an increase of 20.82% over the previous year; net profit was 90 million yuan, an increase of 148.73% over the previous year. The company achieved a processing volume of 98,800 tons of aluminum, an increase of 7.12% over the previous year. The aluminum products business achieved sales revenue of 1,687 billion yuan, a decrease of 6.65% over the previous year; a net loss of 39 million yuan.

Profit forecast, valuation and investment rating: Considering the decline in coal prices, we are revising our profit forecast. The operating income for 2024-2026 is 132.59 billion yuan, 146.34 billion yuan, and 16.035 billion yuan, respectively, and realized net profit to mother of 1,435 billion yuan, 17.71, and 2.43 billion yuan respectively (the original profit forecasts for 2024-2025 were 20.83, 23.63, and the profit forecast for 2026 was added). Earnings per share are 1.99, 2.45, and 2.96 yuan, respectively. The current stock price is 13.98 yuan, corresponding to PE, respectively 7.0X/5.7X/4.7X, maintaining a “buy” rating.

Risk warning: the risk that coal prices will fall beyond expectations, the risk that the progress of construction and nuclear reinforcement mines will fall short of expectations, and the risk of untimely update of research and usage information data.