Event: On October 28, 2024, the company released the 2024 third quarter report. In the first three quarters of 2024, the company achieved operating income of 8.419 billion yuan, a year-on-year decrease of 12.34%; net profit to mother was 0.707 billion yuan, a year-on-year decrease of 60.70%.

24Q3 performance declined month-on-month, and investment returns were stable month-on-month. In the third quarter of 2024, the company achieved operating income of 2.942 billion yuan, down 6.16% year on year and 8.49% month on month; net profit to mother was 0.155 billion yuan, down 64.46% year on year and 62.77% month on month. The 24Q3 company's four fees increased by 0.003 billion yuan month-on-month, of which management expenses decreased by 0.017 billion yuan month-on-month and financial expenses increased by 0.02 billion yuan month-on-month. 24Q3's investment income decreased by 0.002 billion yuan to 0.065 billion yuan month-on-month, mainly from shares in the mining company Armenia Daning.

Coal production and sales declined in 24Q3 compared to the same period, and profits were damaged due to price reduction and cost increases. 24Q1-3: The company achieved coal production and sales volume of 10.498/8.8718 million tons, +4.9%/-1.2% year on year; sales price of tons of coal was 633.5 yuan/ton, down 15.5% year on year; sales cost of tons of coal was 357.7 yuan/ton, up 17.0% year on year; and gross profit margin of coal business was 43.5%, down 15.7 pct year on year. 24Q3: The company achieved coal production of 3.4419 million tons, -3.1%/-12.6%; coal sales volume: 3.1133 million tons, -6.0%/-7.8%; tons of coal sold at 627.0 yuan/ton, -8.2%/-2.2% year on month; sales cost of tons of coal was 363.7 yuan/ton, +18.7%/+4.9% year on month; gross profit margin of coal business was 42.0%, -13.1/-3.9 pct.

The 24Q3 urea cost drop was less than the selling price, and gross margin declined month-on-month. 24Q1-3: The company achieved urea production and sales volume of 0.7347/0.7091 million tons, -1.9%/-3.5%; comprehensive sales price of 1963.3 yuan/ton, down 12.7% year on year; unit sales cost of 1595.5 yuan/ton, down 16.2% year on year; urea gross profit ratio of 18.7%, up 3.4 pcts year on year. 24Q3: The company achieved urea production of 0.2566 million tons, -1.3%/-0.2%; sales volume 0.2328 million tons, -3.9%/-17.7% YoY; comprehensive sales price of 1866.0 yuan/ton, -14.3%/-6.7% YoY; unit sales cost 1630.0 yuan/ton, -4.1%/+3.3% YoY; urea gross margin ratio of 12.6%, -9.4/-8.4 pct. According to the announcement, the company's chemical branch stopped production from October 15, 2024 to January 12, 2025. The shutdown period is 90 days. It is expected to affect the company's 24Q4 urea production reduction of about 0.0455 million tons, affecting sales revenue by about 78 million yuan; affecting the company's 25Q1 urea production reduction of about 0.007 million tons, affecting sales revenue by about 12 million yuan.

24Q1-3 caprolactam decreased year-on-year, and 24Q3 losses increased slightly month-on-month. 24Q1-3 benefited from a year-on-year increase in prices, and the company's caprolactam business reduced the year-on-year loss by 3.31 million yuan; in 24Q3, due to falling sales prices and rising costs, caprolactam gross margin fell 4.4 pct month-on-month, and losses increased by 0.011 billion yuan.

Mine safety fee collection standards were adjusted, and the total annual profit increased by about 87 million yuan. Since July 1, 2024, the company will collect safety fees from its coal mines according to the new standard. Coal (rock) and gas (carbon dioxide) protruding mines will be extracted at 50 yuan per ton of coal, 30 yuan per ton of coal, and 15 yuan per ton of coal from other mines, which is expected to affect the company's total profit increase of about 87 million yuan in 2024.

Investment advice: Considering the loss of profitability in various business segments of the company, we expect the company's net profit to be 0.993/1.497/1.748 billion yuan in 2024 to 2026, corresponding EPS of 0.67/1.01/1.18 yuan/share, respectively. The PE corresponding to the closing price of October 28, 2024 is 14/9/8 times, respectively, and downgraded to a “careful recommendation” rating.

Risk warning: Coal prices have dropped sharply; the commissioning of mines under construction falls short of expectations.