Backed by China Power Investment Group, it has the advantage of “integrated coal, electricity and aluminum” industry, and has broad room for future growth. By the end of 2023, the company had 48 million tons/year of coal production capacity, 1.2 million kilowatts of coal power installed in public network units, 0.86 million tons/year of electrolytic aluminum production capacity, and 4.552 million kilowatts of new energy installed. Among them, in the electrolytic aluminum industry chain, the company has 1.8 million kilowatt coal power installations, 0.9 million kilowatt wind power installations, 0.15 million dry tile photovoltaic installations, and 0.86 million tons of electrolytic aluminum production capacity and supporting facilities in the Holin River Circular Economy Demonstration Project, which consumes about 9 million tons of coal per year. It is the world's first “coal-electricity-aluminum” circular economy green industry cluster. According to the general idea of “coal-to-electricity-aluminum” circular economy green industry cluster, according to the general idea of “using coal to generate electricity, make aluminum with electricity, use electricity to promote coal” The demonstration zone has consolidated the sustainable development capacity of coal resources and realized the transformation and upgrading of the industrial chain based on traditional coal power to a “coal power+green energy base+industrial cluster” comprehensive smart energy industry chain. It is worth noting that China Power Investment Group promised during the operation of power investment energy capital that power investment energy is its only platform and investment vehicle for integrating coal, thermal power generation and electrolytic aluminum resources within the Inner Mongolia region, and that related assets will be injected in due course after meeting specific conditions.

Coal sector: The company is a leading lignite company in Mengdong. Large open pit coal mines have low costs, a high proportion of long-term cooperative sales, and stable profitability in the main coal industry. The company is a leader in Mengdong lignite, with a coal production capacity of 48 million tons and a calorific value of about 2,800-3,700 kcal. Generally speaking, due to its low calorific value and limited transportation radius, the price of a ton of coal is not high, so the profit margin for this type of coal is often small. However, the gross margin of the coal business of Power Investment Energy has been around 40-50% in recent years. The high long-term cooperation ratio, price stability brought about by a stable customer base, and lower costs brought about by open pit mining and nearby supply together form the company's stable and high gross profit margin. Looking ahead, we expect overall coal performance to remain steady. Looking ahead, considering that the Group still has unlisted production capacity (about 35 million tons) and is currently in the company's escrow, considering asset injection, it is expected to bring about a significant increase in the company's performance.

Power sector: Coordinating the integration of coal power and the transformation of new energy sources. The green power business, in particular wind power, has a lot of room for growth. By the end of 2023, the company's total electricity installed capacity was 7.5 GW, including 3GW of coal power and 4.55 GW of wind power. In terms of coal and electricity, the 1.2 GW of the company Huolin River Kengkou Power Generation Company is an Internet unit. The profit level is relatively good. It uses all the company's own coal. The degree of integration of coal and electricity is high, and the performance is relatively stable. In terms of new energy, of the company's current 4.5GW of installed new energy, 3.4 GW is wind power, and about 1.15 GW is photovoltaic. The total Internet capacity of new energy units is 3.5 GW, of which about 1.9 GW of new energy installations were connected to the grid by the end of 2023, and the green power business is expected to contribute to increased performance in 2024. At the end of 2025, the company plans to install more than 7 GW. The new production capacity is mainly wind power generation, which has a certain advantage over photovoltaic power generation in terms of the price of using hours and kilowatts of electricity. By 2026, excluding new energy power generation supporting the electrolytic aluminum business, we expect the installed capacity of the green power network to contribute about 5.3 GW to the performance.

Electrolytic aluminum sector: The company's own power plant brings the cost advantage of electrolytic aluminum, and there is still room for capacity growth, which is expected to contribute to flexible performance. In the context of dual carbon, the supply ceiling for electrolytic aluminum is clear, and growth is slow, while demand for aluminum, mainly for new energy vehicles, is expected to grow on the demand side. Combined with US interest rate cuts, the price of electrolytic aluminum is expected to benefit from the rise in the commodity cycle. The company currently has an electrolytic aluminum production capacity of 0.86 million tons. Huo Mei Hongjun's 1.8GW coal-fired power plant is mainly used by the electrolytic aluminum plant and does not generate external profits. Benefiting from the lower electricity costs of self-owned power plants, the cost of the company's electrolytic aluminum business is relatively stable, and there is a high profit margin compared to the industry; in addition, considering that the company still has 0.35 million tons of electrolytic aluminum production capacity and is currently undergoing preliminary work (51% equity ratio), it is still 40% increase from the current 0.86 million tons/year production capacity, which is expected to contribute to performance flexibility.

Profit forecast and investment rating: We are optimistic about the company's “coal, electricity and aluminum” integrated industry development model to develop coal and coal electricity, coal power and new energy, and electrolytic aluminum businesses in an integrated manner to achieve integrated development of traditional energy and new energy, and coal and electrolytic aluminum. It has outstanding resource advantages and cost advantages, strong resilience to risks, and is expected to achieve continuous and steady development. We estimate that the company's net profit for 2024-2026 will be 5.741/6.087/6.605 billion yuan, EPS 2.56/2.72/2.95 yuan, and the corresponding PE will be 7.84 /7.39/ 6.82 times, respectively. We believe that in an environment of steady economic growth with a series of policies, the coal and aluminum industries are expected to continue the boom cycle. The quality of the company's coal, electricity, and electrolytic aluminum assets is relatively good, and the increase in the green electricity and electrolytic aluminum business is worth looking forward to. It is expected to release profit elasticity, and for the first time, coverage will give the company a “buy” rating.

Risk warning: The economic growth rate fell short of expectations, and coal prices fell sharply: production safety accidents occurred in coal mines; electricity prices fell in Inner Mongolia; and production capacity under construction was slow.