Incident: On July 19, 2024, the company issued an announcement stating that the company and Highfield Resources Limited (hereinafter referred to as Highfield Resources) are planning a strategic cooperation. The company plans to obtain additional shares from Highland Resources through asset injection and cash subscription, becoming the largest shareholder of Highland Resources after the transaction and gaining control. On July 19, Yankuang Energy and Highland Resources signed a non-legally binding “Letter of Intent for Cooperation” in this regard. According to the letter of intent to cooperate, the company plans to transfer Yancoal CanadaResourcesCo to Highland Resources. , Ltd. (hereinafter referred to as Yancoal Canada) is 100% of the shares. Highland Resources will use newly issued common shares as transaction consideration; in addition, Highland Resources plans to target additional Highland Resources shares to several strategic investors, including Yankuang Energy, and plans to raise 0.22 billion US dollars. Yankuang Energy intends to invest no more than 0.09 billion US dollars to participate in the subscription. If the subscription amount of other strategic investors exceeds 0.13 billion US dollars, Yankuang Energy's subscription amount can be reduced accordingly. After the transaction is completed, Yankuang Energy will become the largest shareholder of Highland Resources. The goal is to obtain a majority seat on the board of directors, gain control of Highland Resources, and achieve consolidated statements.

The company increased its potash business. According to the announcement, Yancoal Canada is an overseas wholly-owned subsidiary of Yankuang Energy and holds 100% of the Southey Project (Greenland Potassium Mine Project) and four other potash mineral rights. Of these, the Southey Project has about 1.696 billion tons of potassium chloride resources. Highland Resources is a company incorporated in Australia. The core project is a potash mine project under construction in northern Spain, with about 0.28 billion tons of potash resources. The project began earthwork construction in 2022, and the first phase is designed to have a production capacity of 0.5 million tons/year.

If successfully implemented after the transaction, it will help the company obtain high-quality potash resources, speed up the completion of resource development, reduce the operational risks of Yancoal Canada, and enhance the company's competitiveness.

Endogenous epitaxial growth in the main coal industry can be expected. According to the announcement, the company's commercial coal production plan for 2024 is 0.14 billion tons, up 5.97% from 0.132 billion tons in 2023. In the future, the company will gradually achieve production results in the Xinjiang Enghua Iwanggou Coal Mine and the 10-million-ton Wucaiwan No. 4 open pit mine. Furthermore, the company successfully competed for the No. 1 Ida prospecting rights in the Huolinhe Mining Area of Inner Mongolia to obtain 1.04 billion tons of coal resources. Endogenous growth is strong. In terms of epitaxial growth, the “Development Strategy Outline” formulated by the company in December 2021 proposes to strive for coal production (raw coal production with 100% equity) to reach 0.3 billion tons/year in 5-10 years. The company's commercial coal production reached 0.13 billion tons in 2023. In the future, the company will insist on combining connotative growth with epitaxial growth to obtain high-quality resources.

Investment advice: Considering that the company's capital expenditure is relatively stable, there is still room for improvement in future production, and the company's guaranteed cash dividend ratio is 60% of distributable profits, and the dividend ratio has investment value. We expect the company's net profit to be 18.207/20.061/21.318 billion in 2024-2026, corresponding EPS of 1.81/2.00/2.12 yuan/share, respectively, and the PE corresponding to the stock price on July 19, 2024 is 9/8/7 times. Maintain a “Recommended” rating.

Risk warning: There is great uncertainty about this transaction, macroeconomic growth is slowing down; coal prices have dropped sharply; chemical prices have declined sharply, there is a risk of exchange rate fluctuations, and uncertainty about the company's asset injection.