Q1 The sharp drop in product volume and price dragged down performance. Focus on the Malang coal mine and high dividends, and maintain a “buy” rating
The company released its 2024 quarterly report. In the first quarter of 2024, the company achieved revenue of 10.041 billion yuan, -49.4%, and -15.7% month-on-month; realized net profit of 807 million yuan, -73.1% year-on-year, +150.2% month-on-month; realized net profit without deduction of 774 million yuan, -74% year-on-year, and +8.5% month-on-month. We maintain the company's profit forecast for 2024-2026. We expect the company's net profit to be 65.5/84.6/9.56 billion yuan in 2024-2026, +26.5%/+29.3%/+13% year-on-year, and EPS is 1.00/1.29/1.46 yuan respectively, corresponding to the current stock price PE 7.3/5.7/5.0 times, respectively. As the price of coal and natural gas gradually returns to a reasonable range, the price level will reflect the company's performance in a more reasonable manner, and the “buy” rating will be maintained, taking into account the flexible catalytic performance of the Malang coal mine and the company's high dividends or sustainability.
Production and sales of coal, natural gas and major coal chemical products declined year on year, compounding price weakening the performance (1) coal sector: in terms of production and sales, due to extreme weather and safety inspections, the company's coal production and sales declined year on year in the first quarter. 2024Q1 achieved raw coal production/sales volume of 589.2/7.803 million tons, respectively, -12.96%/-1.09%, achieving improved coal production/sales volume of 85.7/1.125 million tons, -19.11%/+27.28%; in terms of price, refer to Wind Hami Q6000 thermal coal The average price of the 2024Q1 Hami Q6000 thermal coal in Kengkou was 625.57 yuan/ton, -22.8% year-on-year. The decline in coal prices also dragged down performance to a certain extent. (2) Natural gas sector: In terms of production and sales, 2024Q1's 1.2 million tons of methanol co-production project produced 190 million square meters of LNG, -4.61% year over year. The company achieved LNG sales of 1.18 billion square meters, or -44.1% year over year, mainly due to a large year-on-year decline in natural gas sales at the Qidong LNG terminal in Jiangsu; in terms of price, 2024Q1 natural gas prices also declined significantly. The average price of China's liquefied natural gas market in the first quarter was 4,527 yuan/ton, -23.5% YoY. (3) Coal chemical sector: 2024Q1 The production and sales volume of major coal chemical products declined year on year. Among them, methanol production/sales volume was 288/284,000 tons, -3.65%/-45.52% YoY, coal-based oil production/sales volume was 145/144,000 tons, -15%/-19% YoY, coal chemical by-product production/sales volume was 10.8/163,000 tons, -2.69%/-48.9% YoY. The comprehensive utilization of waste gas production and 400,000 tons of ethylene glycol project was discontinued in the first quarter. The operation was successful, and a polyester grade ethylene glycol product was produced on April 3.
Focus on the growth of the main business, high dividends or sustainability
(1) Catalyzing the resumption of production at the Malang Coal Mine: The Malang Coal Mine has received approval from the National Energy Administration for capacity replacement and is currently actively promoting the processing of project approval procedures. The resumption of production at the Malang Coal Mine will be a key catalytic factor in releasing the company's flexible performance. (2) The LNG turnover capacity has been further improved: The 6 #20 million cubic meter storage tank project completed trial production procedures on March 19, 2024, pre-cooling was completed on April 9, and the trial operation stage was entered on April 10. The project is expected to be completed within the year, and the company's LNG turnover capacity is expected to be further improved in the future.
(3) The drilling work of the Jaisan oil and gas project is progressing at an accelerated pace: the company was approved for import of 300,000 tons of the second batch of crude oil in 2024. On April 19, 2024, the first deep S-308H well in the company's Jaisan oil and gas field was successfully drilled. (4) High dividends are sustainable: In 2023, the company paid a cash dividend of 0.7 yuan/share (tax included), with a dividend ratio of 87.9%, compared to +35pct in 2022, corresponding to the current dividend rate of 9.6%. Considering that in the future, as the company's additional production capacity is implemented, the company's profitability is expected to further increase, and the company's high dividend is expected to continue.
Risk warning: Economic recovery falls short of expectations; sharp drop in energy prices; progress in adding production capacity is lagging behind, etc.