It is an enterprise in Anhui Province. Its business is coal-based, linked to electricity, and dividends are rising steadily. The company was listed on the Shanghai Stock Exchange in 2004. It is the earliest listed coal company in Anhui Province. The controlling shareholder is Northern Anhui Coal and Electricity Group. Coal sales are the core business. With the exception of 2014 and 2015, the gross profit of coal contributed more than 90% of the total gross profit in the past ten years. Other businesses include electricity, railway transportation, road transportation, and construction materials. The company focuses on shareholder returns. The dividend payment rate increased steadily in 2019-2023. The total cash dividend payment in 2023 was 1 billion yuan (tax included), and the dividend ratio was 50.10%.

Coal business: Existing resource reserves are sufficient, and asset injection expectations still exist. As of 2023, the company's total coal resources are 1.105 billion tons, with recoverable reserves of about 0.557 billion tons. The mining period is about 51 years. The mining areas are distributed in Huaibei City and Suzhou City in Anhui Province, and the five mines have an approved production capacity of 10.95 million tons/year. Currently, the controlling shareholder, North Anhui Coal and Power Group, still has a production capacity of 16.6 million tons/year. In the future, it is not ruled out that it will be injected into listed companies after the conditions are met, which is expected to further increase the company's coal resource reserves.

Electric power business: Joint venture thermal power contributed increased, and the optimal layout of green power was developed. The company currently holds a total equity scale of 550 MW in Yunyun Thermal Power Plant. In 2023, only Qianyingzi Power Generation and Suzhou Thermal Power achieved profits. The 1000MW unit of the second phase of the Qianying Zi Power Generation Project under construction is expected to be completed by the end of 2024. After production, the installed capacity of the company's thermal power equity will increase by 91% compared to the present.

The project is a key power supply project in Anhui Province during the “14th Five-Year Plan” period. After commissioning, it is expected to generate 5 billion kilowatt-hours per year and provide 0.8 million kilowatts of peak-shifting capacity. At the same time, in order to better achieve the collaborative development of the thermal power and new energy industries, the company established Wanheng New Energy Co., Ltd. in March 2023 to invest 0.44 billion yuan in cash to build the 0.8 million kilowatt new energy project supporting the Qianyingzi Power Generation Company Phase II expansion project. According to the Wind investor platform, the first phase of the 0.3 million kilowatt wind power project was approved at the end of 2023 and is expected to be completed in 2025; the second phase of the 0.5 million kilowatt project will wait for the first phase to be completed before proceeding according to the plan.

Investment advice: We expect the company to achieve operating income of 7.673 billion yuan, 7.812 billion yuan, and 7.921 billion yuan respectively in 2024-2026, with growth rates of -1.5%, 1.8%, 1.4%, and net profit of 1.667 billion yuan, 1.811 billion yuan, and 1.909 billion yuan respectively in 2024-2026, with growth rates of -18.1%, 8.6%, and 5.4% respectively. The company is located at the Lianghuai base. Prices of thermal coal and coking coal are sold in the form of long-term cooperation, which enhances its performance stability to a certain extent.

At the same time, the growth in electricity consumption in Anhui Province is driving a continuous increase in coal consumption, laying a good foundation for the company's long-term development. We look forward to the growth space brought by the company's subsequent investment in group assets and the implementation of thermal power plants. The first coverage gave the company a “buy-A” investment rating and gave the company 7.5xPE in 2024, corresponding to a 6-month target price of 10.43 yuan.

Risk warning: risk of macroeconomic cycle fluctuations, coal price risk, production safety risk, environmental risk, risk of falling regional utilization hours, risk of falling electricity prices, performance prediction model errors exceeding expectations, dividend ratio falling short of expectations.