In the first half of 2024, the performance of dividend assets with a high proportion of long-term contracts continued to significantly outperform the industry. The performance pressure caused by the simultaneous decline in volume and price in the first half of the year was released, and it is determined that the bottom of coal price in the second half of the year will not break 800 yuan/ton, and the turning point is expected to be in mid-September.
Gutong Financial APP learned that Guotai Junan released a research report stating that the performance of dividend assets with a high proportion of long-term contracts in the first half of 2024 continued to significantly outperform the industry. The performance pressure caused by the simultaneous decline in volume and price in the first half of the year was released, and it is determined that the bottom of coal price in the second half of the year will not break 800 yuan/ton, and the turning point is expected to be in mid-September. The coal sector has basically released the performance pressure in the first half of 2024. Since the beginning of 2023, the continuous decline in coal prices has led to a decline in industry ROE, which is expected to reach its lowest point in the second or third quarter of 2024. In the future, driven by the clearer bottom and center of the industry price, the cyclical weakening of the coal industry and the predictability and stability of the profitability of dividend leaders will continue to be strong, and the investment strategy of "dividends" will continue.
GTJA's main opinions include:
The industry's performance is generally under pressure, and the performance of dividend leaders is leading.
In the first and second quarters of 2024, the performance of the coal sector decreased by 32% and 26% respectively compared to the same period last year, indicating that most companies are still closely following the fluctuation of coal prices due to the high proportion of market coal. At the same time, we also observed that in the context of increasing downward pressure on industry profitability, China Shenhua, Shaanxi Coal Industry, and China Coal Energy all saw a decline in profitability in the second quarter while the industry's profitability was down 26%. However, the single-quarter profitability of these companies decreased by 7%, increased by 26.9% (due to fair value fluctuations), and increased by 2%, with the performance of dividend leaders leading the way. Guotai Junan believes that this reflects the high proportion of long-term contracts and the integration of the industrial chain, which smooths out the cyclical fluctuations and proves the profitability moat from a performance perspective.
The downward pressure on industry profitability is slowing down, and the decline in the third quarter is expected to further ease.
Another change in the industry in the first half of the year is that the decline in profitability has narrowed. The decline in industry profitability in the second quarter narrowed to -26%. Although it is not significant in terms of numbers, the overall decline in Q3 is expected to be significantly reduced when predicting from the perspective of volume and price. From a price perspective, the year-on-year pressure in Q1 was the greatest, with a decline of 20%; the year-on-year decline in Q2 narrowed to 7%; and the year-on-year decline in Q3 as of the end of August was only 3%.
From a quantitative perspective, the national coal production in Q1 decreased by 4.1%, mainly due to the impact of the "three excess" governance in the Shanxi region, resulting in a significant decrease in production. The Q1 production of listed companies in Shanxi has declined by more than 10%. However, starting from mid-May, the Shanxi region has required local companies to increase production. Based on the data from June to July, Shanxi has already increased production to over 0.11 billion tons per month, which is the average monthly production level in 2023. At the same time, production in Inner Mongolia, Xinjiang, and Shaanxi continues to grow, and it is expected that the Q3 production will recover and grow compared to the same period last year.
Mid-term dividends are increasing gradually, and the sector's dividend trend is upward.
From the mid-year report in 2024, China Coal Energy, Shaanxi Coal Industry, and Yankuang Energy have increased their mid-term dividends, with mid-term dividend rates of 30%, 10%, and 30% respectively. The industry's capital expenditure shows a continued downward trend, but the overall logic of dividend improvement remains unchanged, and the industry's dividends are expected to continue to show an upward trend.
Recommended symbols: China Shenhua Energy (601088.SH), China Coal Energy (601898.SH), Shaanxi Coal Industry (601225.SH), China Coal Xinji Energy (601918.SH) as a coal and electricity integrated symbol, and benefiting from Shaanxi Energy (001286.SZ). Pingdingshan Tianan Coal Mining (601666.SH), Shanxi Coking Coal Energy Group (000983.SZ) as representatives of contract coke coal symbols, and Shanxi Coal International Energy Group (600546.SH), Shanxi Lu'an Environmental Energy Development Co., Ltd. (601699.SH), Shanxi Lanhua Sci-Tech Venture Co., Ltd. (600123.SH) as symbols with recovering performance.
Risk warning: macroeconomic growth is lower than expected; large-scale imported coal enters the market; supply exceeds expectations.