According to the Futu Securities research report, after the supply growth rate of the coal industry started to decline in 2023, the coal price went through two tests of 800 yuan/ton pressure in May 2023 and April 2024 respectively, with significant support. The Third Plenum of the 20th Central Committee of the Communist Party of China proposed to further comprehensively deepen reforms and promote Chinese-style modernization. Against the background of economic recovery and weak supply, the central price of coal is expected to steadily rise year by year in 2024 as the State-owned Assets Supervision and Administration Commission (SASAC) extensively promotes market value management of state-owned enterprises and the China Securities Regulatory Commission (CSRC) promotes high-quality dividends for listed companies, and the cost of insurance assets continues to decline. Coal stocks are expected to have double-digit growth in both the numerator and denominator ends of the DDM model, and the investment value of the coal sector is expected to continue to be bullish.

In Q2 of 2024, the coal industry exhibited remarkable defensive properties. In Q2 of 2024, the coal industry performed well in the market, outperforming the SSE composite index with both excess and absolute returns, ranking fourth in the Shenwan first-level industry in terms of growth. In the second quarter of 2024, the coal sector rose by 1.35%, while the Shanghai Composite Index fell by 2.43%, and the coal sector exceeded by 3.78%. In terms of the performance of sub-industries, thermal coal > coking coal > coke, with increases/decreases of 7.27%, -6.14%, and -22.27% respectively.

The coal sector's holding market value accounts for 1.59%, and the underweight range is narrowing. In terms of holding market value, the total market value of coal stocks held in public funds' heavy positions in the second quarter was 42.144 billion yuan, accounting for 1.59% of the market value of public funds in mainland China, an increase of 0.15% compared to the previous quarter. With the industry's circulating market value ratio as a reference for the fund's target allocation ratio, as of the end of the second quarter of 2024, the A-share circulating market value was 67.08 trillion yuan, and the circulating market value of the coal industry was 1.71 trillion yuan, accounting for 2.55%. After excluding Hong Kong stocks, the proportion of coal stocks held in public funds' heavy positions in terms of market value was 1.62%, an increase of 0.22% compared to the previous quarter, and the underweight range was 0.93%, narrowing by 0.07%.

Shaanxi Coal Industry had the most heavy holdings among public funds and Gansu Energy Chemical had a significant increase in holdings. In terms of the total amount of holdings, Gansu Energy Chemical, Shanxi Coking Coal, China Coal Energy HK, Jinneng Holding Shanxi Coal Industry, and China Coal Energy were the top five, increasing their holdings by 1.15, 0.55, 0.054, 0.053, and 0.038 billion shares respectively. In terms of changes in the proportion of market value held by the fund's stock investment market value, China Shenhua Energy, Jinneng Holding Shanxi Coal Industry, China Coal Energy, Inner Mongolia Dian Tou Energy Corporation, and Shanxi Coking Coal were the top five, accounting for 0.19%, 0.03%, 0.05%, 0.02%, and 0.03% respectively, with an increase of 0.0408pct, 0.0167pct, 0.0122pct, 0.0111pct, and 0.0104pct respectively compared to the first quarter of 2024.

Coal stocks have significant long-term holding returns, highlighting investment value with high dividends. Long-term holding returns mainly include capital gains and dividend income. The average compound return of sample companies since their IPOs until Q2 of 2024 was 9.4% in terms of stock price and dividend income. If the dividend income is reinvested, the average compound return of sample companies is 10.1%.

Investment recommendation: bullish on the investment value of the coal sector, recommending three directions: 1) high-quality dividends. High-quality companies have long-term dividend capabilities, and with the decline in capital expenditures, the dividend payout ratio has room to continue to increase. Recommended: Shaanxi Coal Industry, Shanxi Coal International, China Coal Energy, suggested attention: China Shenhua Energy, Yankuang Energy, etc.; 2) long-term increment. The increase in coal production capacity is rare, and the coal-power integration conforms to the political orientation, and the coordinated development irons out the risk cycle. Recommended: China Coal Xinji Energy, Gansu Energy Chemical, Inner Mongolia Dian Tou Energy Corporation, Beijing Haohua Energy Resource, Wintime Energy, suggested attention: Guanghui Energy, Guizhou Panjiang Refined Coal, Shaanxi Energy, Sunon Energy; 3) double coke elasticity. Under the expectation of recovery, there is room for rebound in double coke after experiencing a significant price drop in the previous period. Recommended: Shanxi Lu’an Environmental Energy Dev.Co.,Ltd, Pingdingshan Tianan Coal Mining, Huaibei Mining Holdings, China Risun Group, suggested attention: Shanxi Coking Coal Energy Group, Jizhong Energy Resources, etc.

Risk warning: relaxation of coal safety inspections; domestic economic recovery is less than expected; overseas economic recession.