Incidents:
On April 27, Huaibei Mining released its 2024 quarterly report: In the first quarter of 2024, the company achieved operating income of 17.32 billion yuan, -8.8% year-on-year, net profit attributable to shareholders of listed companies of 1.59 billion yuan, -24.7% year-on-year, and net profit attributable to shareholders of listed companies after deduction of 1.56 billion yuan, -24.6% year-on-year.
Investment highlights:
Coal business: The ability to control costs is outstanding, and production may continue to rise in the future. In the first quarter of 2024, the company achieved commercial coal production of 5.236 million tons, and commercial coal sales of 4.026 million tons (export caliber, same below), or -21.1% year-on-year. The decline in sales volume was mainly due to the high sales base of stored coal and sales volume at the Xinhu Coal Mine during the same period last year. The price of commercial coal tons of coal reached 1176.5 yuan/ton, -15.2% year-on-year, the cost of a ton of coal was 592.7 yuan/ton, -17.0% year-on-year, and gross profit of tons of coal reached 583.7 yuan/ton, or -13.3% year-on-year. There is still some room for improvement in future production at the Xinhu Coal Mine (3 million tons/year). At the same time, the Taohutu Coal Mine with a design capacity of 8 million tons/year is in the construction investment stage. The coal quality of the mine is relatively good, mainly high-calorific value thermal coal of 6,000 kcal or more. Construction of the project began in May 2023. It is expected to be completed by the end of 2025, and trial production in the first half of 2026.
Coal chemical business: Prices fell year-on-year, waiting for the ethanol project to be released. In terms of coke, the company's coke production/sales volume in the first quarter of 2024 was 87.6/86.3 million tons, respectively, and the price of a ton of coke reached 2311.7 yuan/ton (excluding tax), -14%; in the first quarter of 2024, the company's methanol production/sales volume reached 91/8.1 million tons, respectively, -43%/-46%, respectively. The unit price of methanol was 2,161.9 yuan/ton (excluding tax), or -4% year-on-year. According to the company's announcement on December 28, 2023, the 600,000 tons/year ethanol project is already in the trial production stage, and it is expected that the coal chemical industry's performance will grow after it is put into operation in 2024.
It is planned to invest in the construction of thermal power plants and the joint development of the coal power industry. On November 24, 2023, Huaibei Mining Co., Ltd. and Anhui Energy Co., Ltd. were jointly funded to establish Huaibei Juneng Power Generation Co., Ltd. as the implementing entity to invest in the construction of a 2×660MW ultra-supercritical coal-fired generator project in Lieshan District, Huaibei City, Anhui Province. The two parties hold 80% and 20% of the shares respectively. The total investment of the project is estimated at 5.261 billion yuan, and the project capital is 1.01 billion yuan. The construction cycle of the project is 30 months. As of April 26, 2024, it has now been approved by the Anhui Provincial Development and Reform Commission. Early approval procedures such as safety assessment, EIA, energy assessment, water resources verification, and access systems have basically been completed. Land certificates have already been applied for some of the land used for the project, and the remaining land certificates are still being processed.
According to preliminary estimates, after the project was completed and put into operation, the total annual profit was 196 million yuan, and the internal return on investment was 18.52%. The company held the 24th meeting of the 9th board of directors on April 26, 2024 to review and pass the “Proposal on Subsidiary Companies Investing in the Construction of a 2×660MW Ultra Supercritical Coal-fired Generator Project”, agreeing to invest in the construction of a 2×660MW ultra-supercritical coal-fired generator project using concentrated energy power generation as the implementing entity of the project.
The dividends continue to rise. In 2023, the company plans to distribute a cash dividend of 10 yuan (tax included) for every 10 shares, with a dividend ratio of 42.6%, while the dividend ratios for 2021/2022 are 36.3% and 37.2% respectively. The dividends have continued to increase in recent years, showing the investment value.
Risk warning: We expect the company's revenue in 2024-2026 to be 765.3/787.2/83.30 billion yuan, +4%/+6% year-on-year, net profit to mother of 64.0/66.7/7.22 billion yuan, respectively, +3%/+4%/+8%; EPS will be 2.38/2.48/2.68 yuan, respectively, corresponding to the current stock price PE 7.5/7.2/6.7 times. Considering that the production capacity of the Xinhu coal mine will continue to rise in the future, the Taohutu coal mine will contribute high-quality production, the anhydrous ethanol project in the coal chemical sector can be expected to be put into operation, and the joint development of coal and electricity has progressed. The company will have a certain growth potential in the future. At the same time, the dividend ratio continues to increase, showing investment value, and maintaining a “buy” rating.