Municipal state-owned enterprises, strategically moving westward. Established in 2002, Beijing Haohua Energy Co., Ltd. is a second-tier platform company of Beijing Energy Group Co., Ltd. After two capital increases, it was listed on the Shanghai Stock Exchange in March 2010. As of the first quarter of 2024, Jingneng Group was the company's largest controlling shareholder, and the Beijing Municipal State-owned Assets Administration Commission was the actual controller. The company's main business covers coal mining, coal chemicals, railway transportation and other fields. After years of development, it has gradually formed a management center with Beijing as the management center and regions such as Ordos and Ningdong as the core business areas. The business scope covers energy-rich regions in central and western China. As of the first quarter of 2024, the company achieved revenue of 2,413 billion yuan, a year-on-year increase of 7.58%, achieved gross profit of 1,229 billion yuan, an increase of 58.76% over the previous year, and the company's net profit to mother was 452 million yuan, an increase of 5.12% over the previous year. With profits rising steadily in recent years, the company actively gave back to shareholders. In 2023, the dividend rate was 48.46%, and the absolute amount reached 504 million yuan.
Coal business: Production is increasing steadily, and profit flexibility is gradually being released. 1) As of the 2023 annual report, the company's coal resource reserves are 2,095 million tons, and the mining period exceeds 58 years; 2) By the end of 2023, the company's approved production capacity in coal mines was 19.3 million tons/year, and the equity production capacity was 13.28 million tons/year; 3) Hongyi and Hong2 coal mines entered joint trial operation in September 2022 and December 2023 respectively. The company's coal production and sales volume will continue to grow, and production and sales will still have room to grow by about 2.25 million tons; 3) With proper cost control, the cost of coal will drop significantly in 2023. The cost of a ton of coal is 187 yuan/ton, a year-on-year decrease of 18.8%; 4) The operation of the Hongyi coal mine improved, and the company's profit flexibility was gradually released. According to our estimates, in 2024-2025, the company's coal business contributed 16.9 billion yuan and 1.89 billion yuan to net profit, respectively, and the year-on-year growth rates in 2024-2025 were 25.0% and 11.9%, respectively.
Non-coal business: The chemical business is under pressure in the short term, and railway transportation profits are stable. Coal chemical business: The company's chemical business is managed by its subsidiary Cathay Pacific Chemical, with an annual methanol production capacity of 400,000 tons. In the third quarter of 2023, the company was affected by equipment parking and maintenance, and production and sales activities were not carried out. The annual methanol sales volume was 3.21 billion tons, a year-on-year decrease of 25.8%.
The difference in price and cost is the main reason driving profit changes in the methanol business. In 2023, the price of a single ton of methanol was 1,837 yuan/ton, down 8.1% year on year, and the price and cost difference increased by 181 yuan/ton over the same period. Railway transportation business: The company's railway business is managed by its subsidiary Dongtong Railway Logistics Co., Ltd. (59% equity). Railway transportation is an important part of the company's “coal-chemical-transportation” integrated industrial layout in the Inner Mongolia mining area. It transports about 6 million tons/year of coal and has a design transportation capacity of 10 million tons/year. Dongtong Railway Logistics Company was recognized as an incentive industry enterprise in the western region in 2023. The rate of corporate income tax was reduced from 25% in 2022 to 15%. By the end of 2023, Dongtong Railway had a traffic volume of 6.22 million tons and operating income of 145 million yuan, or -9.4% over the same period last year.
Investment advice: initial coverage, buy rating. The company's coal business maintains strong production and sales. With the gradual release of high-quality production capacity, the company's profit is expected to rise steadily during the upward cycle of coal prices. We expect the company's net profit to be 15.9, 18.01, and 1.90 billion yuan in 2024-2026. Based on the market value at the close of May 14, the corresponding PE is 8.8, 7.8, and 7.4 times. Refer to comparable company valuations, covered for the first time, and give a “buy” rating.
Risk warning: 1) coal prices fell sharply; 2) macroeconomic growth fell short of expectations; 3) the commissioning progress of new projects fell short of expectations.