The Zhitong Finance App learned that Open Source Securities released a research report saying that the overall decline in the coal price center in the first three quarters of 2024 led to a decline in the profitability of coal companies due to pressure on coal prices. The 2024Q3 did not contribute to economic and quantitative increases, and coal companies' performance improved month-on-month. Currently, the prices of both thermal coal and coking coal are low. As the fundamentals of supply and demand continue to improve, the two types of coal will still have upward elasticity, and both have large room increases. In an environment of slow economic recovery and low interest rates, capital will pay more attention to the certainty of investment returns. High dividends and sustainability of coal are in line with capital allocation preferences, and the coal sector is expected to usher in a starting point for rearrangement.

The main views of Open Source Securities are as follows:

The overall decline in coal prices in the first three quarters of 2024

By type of coal, the average price of Q5500 produced by Qingang thermal coal in the first three quarters of 2024 was 866 yuan/ton, -10.6%, and the average price of Q3 thermal coal was 848 yuan/ton, the same month-on-month; in the first three quarters of 2024, the average price of main coking coal (produced in Shanxi) in Jingtang Port was 2,133 yuan/ton, -2.7% year-on-year. Among them, the price of main coking coal in 2024Q3 continued to fall, with an average price of 1,894 yuan/ton, -9.5% month-on-month.

The profitability of coal companies declined due to pressure on coal prices in the first three quarters of 2024

In the first three quarters of 2024, 21 companies have disclosed that the total coal production was 0.816 billion tons, -0.3% year over year; coal sales were 0.779 billion tons, -2.1% year over year. Twenty-eight listed coal companies (excluding coking companies such as Shanxi Coking and Meijin Energy) achieved total operating income of 987.4 billion yuan in the first three quarters of 2024, -7.4%; total net profit of 155.8 billion yuan, -18.2% year over year; and total net profit to mother of 122.5 billion yuan, or -19.7% year on year. Excluding China's Shenhua, which has a significant impact on the industry, 27 listed coal companies achieved total operating income of 733.5 billion yuan, -9.9% year on year; net profit of 102 billion yuan, -24.0% year on year; and total net profit to mother of 76.4 billion yuan, or -26.7% year on year.

In 2024Q3, non-economic and quantitative increases contributed, and coal companies' performance improved month-on-month

The 28 listed coal companies achieved a total revenue of 330.2 billion yuan, 0.9% month-on-month; net profit to mother of 40.5 billion yuan, +2.9% month-on-month; and net profit of 40 billion yuan after deducting net income to mother, or -7.0% month-on-month in a single quarter. Excluding China's Shenhua, 27 listed coal companies achieved a total revenue of 244.4 billion yuan in the 2024Q3 quarter, -0.9%; net profit to mother 23.9 billion yuan, -7.0% month-on-month; net profit after deduction of 23.4 billion yuan, or -16.8% month-on-month.

Overall, the average operating rate of the Mongolian coal mine in Jinshan and Shaanxi was 82.1% in 2024Q3, +0.2pct year over month. The level of coal operation increased. The month-on-month improvement in supply and non-operating profit and loss of coal companies contributed to the main profit increase. While thermal coal prices remained flat month-on-month, factors such as rising costs of coal companies and falling coking coal prices dragged down the overall performance of the third quarter.

The golden age of coal 2.0, coal core value assets are expected to revive

The logic of cyclical flexible investment in coal stocks will be strengthened by favorable macroeconomic policies. Currently, the prices of both thermal coal and coking coal are low. As the fundamentals of supply and demand continue to improve, the two types of coal will still have upward elasticity, and the spatial increase will be large. Among them, thermal coal is elastic within a range while coking coal is fully elastic, and certain cyclical elasticity properties will be favored by cyclical product funding. The logic of investing in coal stocks with high dividends will reflect core values based on realistic fundamentals.

In the current environment of slow economic recovery and low interest rates, capital pays more attention to the certainty of investment returns. The high dividends and sustainability of coal are in line with capital allocation preferences. Judging from “The Golden Age of Coal 2.0, Transition to Reasonable and Sustainable High Profits” released by the bank on July 25, 2024, most coal companies still have high dividend rates under the 2024 profit level. The coal sector is expected to usher in the starting point of a rearrangement:

The first is favorable macroeconomic policies and strong capital market support. Since September 24, senior management has continued to introduce steady growth policies, downgrade interest rates, and increase real estate support policies. The intensity and intensity is higher than before, and the emphasis and policy support for the capital market has been strengthened;

Second, high dividends and multiple dividends have become a trend. The 2024 interim report was released, and 7 listed coal companies announced mid-term dividend plans (Yankuang Energy/Shaanxi Coal Industry/Electric Investment Energy/Jizhong Energy/Shanghai Energy/China Coal Energy/Liaoning Energy). Compared with the mid-term dividends implemented by coal-free companies in 2023 and only 4 sub-mid-term dividends in the past 5 years, highlighting the effect of the 2024 central enterprise market value management reform in promoting the dividend policy of central enterprises; the coal sector is currently responding positively to policy calls, and there is a trend of promoting future dividends from central enterprises to local state-owned enterprises. Frequency is expected to continue to increase, with high dividends and high dividends in the coal sector The value of the investment is more prominent.

Third, the entry of industrial capital indicates the bottom of the market. Since July 2024, there has been a sharp correction in the sector. Guanghui Energy, Yankuang Energy, etc. have successively disclosed plans to increase their holdings, or indicate that industrial capital currently recognizes the bottom of the sector's value, and that the cost of increasing holdings is significantly lower than primary market purchases or secondary asset injections. Reviewing historical market performance after shareholders' holdings have increased, and the probability of subsequent stock price increases may increase markedly.

Individual coal stocks selected by the four main lines will receive excess income:

Main line 1. Cyclic elasticity logic: Pingmei Co., Ltd. (601666.SH), Huaibei Mining (600985.SH), Lu'an Huanneng (601699.SH), Shanxi Coking Coal (000983.SZ), which benefit from thermal coal elasticity targets Guanghui Energy (), Yankuang Energy (USD), Jinkong Coal (), and Shanmei International (CSU); 600256.SH 600188.SH 601001.SH 600546.SH

Main line 2. Steady dividend logic: China Shenhua (601088.SH), China Coal Energy (601898.SH), Shaanxi Coal (), and Xinji Energy (), which have high dividends and potential beneficiaries; 601225.SH 601918.SH

Main line 3. Breaking net stock (PB<; 1) repair logic: Shanghai Energy (600508.SH), Yongtai Energy (600157.SH), Gansu Energy (000552.SZ), Orchid Science and Technology (600123.SH);

Main line 4. Private enterprise credit qualification repair logic: Guanghui Energy (600256.SH), Yongtai Energy (600157.SH).

Risk warning: Economic growth falls short of expectations; risk of new energy substitution; sharp drop in energy prices, etc.