Q1 Performance declined 16% month-on-month, and cost control was strengthened. The company released its quarterly report. Q1 achieved operating income of 10.55 billion yuan, -28.5% year-on-year, and -28.8%; net profit to mother of 950 million yuan, -61.5% year-on-year and -16.2% month-on-month; net profit after deducting non-return to mother of 896 million yuan, -64% year-on-year and -21.7% month-on-month. The large year-on-year decline in performance was mainly affected by the high base in the same period last year. In Q1, the coal mine safety supervision in Shanxi was further strengthened, and the production of coal companies in Shanxi was generally greatly affected, but the company's cost and expense control efforts were increasing. Among them, Q1 operating costs were -13% year-on-year and -23% month-on-month; total taxes and period expenses were -16% year-on-year and -46% month-on-month.

The company's refined coal accounts for about 60% of sales, and the average price of coking coal produced in Changxie since 24 has risen slightly compared to 23. According to the company's financial report, the company produced 46.08 million tons of raw coal in '23 (+5.1% YoY) and 18.84 million tons of refined coal (+2.8% YoY), with an estimated washout rate of 41%. Commercial coal sales volume was 32 million tons (-0.5% YoY), of which refined coal sales were 19.2 million tons (+4.1% YoY), accounting for 60%. The average sales price of commercial coal in '23 was 1,096 yuan/ton, -13.7% year-on-year; the cost of a ton of coal was 451 yuan/ton, -6% year-on-year. According to Wind data, the representative coal type of coking coal in Shanxi, the average price of coking coal, was 2,160 yuan/ton over the past 24 years, +3.2% year-on-year; among them, the average price of Q1 and Q2 was 2,210 yuan/ton, respectively, down 6.8% and 8.8% from the previous year.

Profit forecasting and investment advice. The company is a leader in the coking coal industry, with strong resource advantages and leading the coking coal industry. It mainly sells by Changxie, benefiting from improvements in the coal market. According to data from the China Coal Industry Association, Shanxi Coking Coal Group produced 185 million tons of raw coal in fiscal year 23 (+1.5% year over year). As the Group's coking coal listing platform, medium- and long-term companies are expected to continue to benefit from the Group's resource integration and increased securitization rate. In the past 5 years, the company has completed the acquisition of shares related to Shuiyu, Tenghui and Huajin coking coal belonging to the group. The company's dividends have increased significantly in the past three years, with dividend ratios of 79%, 64% and 67% for 21-23. EPS is expected to be 1.05, 1.10, and 1.15 yuan respectively in 24-26. Considering the increase in the sector's systemic valuation and referring to comparable company valuations, the company will be given 11 times PE in 24 years, corresponding to a reasonable value of 11.50 yuan/share, maintaining a “buy” rating.

Risk warning. Downstream demand performance is low, coal prices have fallen beyond expectations, cost control is low, etc.