Strong support, strong performance resilience, and continued high dividends highlight investment value. Maintaining the “Buy” rating, the company released its 2024 mid-year report. 2024H1 achieved operating income of 168.08 billion yuan, or -0.8%; realized net profit attributable to mother of 29.5 billion yuan, or -11.3% year over year, and realized net profit of 29.48 billion yuan without return to mother, or -10.6% year over year; in Q2 alone, achieved operating income of 80.43 billion yuan, -8.2% month-on-month, and realized net profit to mother of 13.62 billion yuan, -14.3% month-on-month. Achieved net profit of 13.02 billion yuan after deduction, -20.9% YoY. We keep our profit forecast unchanged. We expect net profit to be 58.08/60.24/61.29 billion yuan for 2024-2026, respectively, -2.7%/+3.7%/+1.7% YoY; EPS is 2.92/3.03/3.08 yuan, corresponding to the current share price PE 13.9/13.4/13.1 times. The company's high profits are expected to continue, and continued high dividends highlight long-term investment value. Maintain a “buy” rating.

The decline in coal prices in the H1 market dragged down the price of tons of coal. The Q2 electricity business volume price increased and decreased: 2024H1, achieving commercial coal production of 163.2 million tons, +1.6% year over year, and coal sales volume of 229.7 million tons, +5.4% year over year, of which self-produced coal sales volume was 162.8 million tons, +2.2% year over year; achieving a comprehensive average price of 566 yuan/ton, -5.8% year on year, mainly due to the decline in coal prices in the market; The cost was 191.7 yuan/ton, year-on-year +2.0%, the sales cost of self-produced tons of coal was 308.6 yuan/ton, +3.3%; gross profit of self-produced tons of coal was 224.0 yuan/ton, -14.2% year-on-year, and gross margin fell 4.6 pct to 42.1%. According to Q2 alone, commercial coal production was 81.9 million tons, +0.7% month-on-month, and -3.8% month-on-month, of which self-produced coal sales volume was 82.5 million tons, +2.7% month-on-month; achieved a comprehensive average price of coal of 559 yuan/ton, -2.5% month-on-month, and self-produced coal sold at 532 yuan/ton, -0.2% month-on-month; self-produced coal production cost was 192.8 yuan/ton, +1.1% month-on-month; self-produced coal sales cost was 320 yuan/ton, +7.7.8% month-on-month; Gross profit per ton of coal 211.9 yuan/ton , -10.3% month-on-month, gross margin fell 4.5pct to 39.8%. Electricity business volume and price pressure: 2024H1, the company's installed power generation capacity continued to increase by 188 megawatts to 44822 megawatts, the power generation and sales volume was 104.04/97.89 billion kilowatt-hours, respectively, +3.9%, the gross profit of the power sector was 7.42 billion yuan, -4.6% year-on-year, and the gross margin decreased by 0.8 pct to 16.0%; in Q2 alone, the amount of electricity produced/sold was 48.69/45.73 billion kilowatt-hours, respectively, -12.0%/-12.3% month-on-month, The gross profit of the electricity sector was 3.01 billion yuan, -26.1% month-on-month, and gross margin decreased by 2.9 pct to 14.0%. The decline in gross margin was mainly due to falling electricity sales prices.

Integrated operations and a high proportion of long-term cooperation have maintained stable profits, and there is still room to increase in scale. Coal production capacity is expected to expand again: in June 2023, the company announced a cash purchase of 10.7 million tons/year of coal mine production capacity under the controlling shareholder National Energy Group (up to the end of 2022) and 10 million tons/year of production capacity under construction, and the size of the company is expected to increase again. In addition, the company's Xinjie Taigemiao mining area has obtained mining licenses for well 1 and 2 of Xinjie.

The Baode coal mine production capacity was raised from 5 million tons/year to 8 million tons/year, and applications for nuclear capacity increases in coal mines such as Li Jiahao and Shengli No. 1 open-pit mine are progressing in an orderly manner. Profit stability is strong, and a high percentage of dividends is expected to continue: the company fully benefits from the high coal boom, and the downstream expansion of power generation business can effectively smooth out fluctuations in coal prices. Combined with the high long-term cooperation ratio of the company's coal business, it is expected to maintain a stable level of profit.

The company's dividend rate for 2023 is 75.2%, and the dividend rate corresponding to the expected profit for 2024 and the current closing price is 5.4%. The investment value is still significant. In September 2022, the company announced that the annual cash distribution profit for 2022 to 2024 was not less than 60% of the net profit to be realized in that year. The company's dividend rates for 2020-2023 were 91.8%, 100.4%, 72.8% and 75.2% respectively, which is always higher than the promised value. In the context of the market value management assessment requirements of central enterprises, we believe that the company not only has the will to pay a high percentage of dividends on a continuous basis, but also has the ability to make stable profits, and the long-term investment value is remarkable.

Risk warning: Economic recovery fell short of expectations; annual Changxie coal benchmark price lowered; mining costs rose.