Sealand: Coal enterprises' profits return to a reasonable level, and the asset-liability ratio further decreases.

Sealand issued a research report stating that in the first half of 2024, with the decline in coal prices and production, the performance of coal-listed companies generally showed a decline. However, their profitability is still strong and returning to a reasonable level. At the same time, the asset-liability ratio of listed companies further decreased, solidifying the quality of their assets. In the long term, during the energy transition process, the smooth operation of the energy system needs to be supported, and coal-fired power generation, which is safe, stable, and cost-effective, is undoubtedly the best choice. In the medium to long term, the dominant position of thermal power generation in the field of electricity generation will not change. In extreme situations, its position may even be further strengthened. It is recommended to grasp the value attributes of the low-end coal sector. In the first half of 2024, the production and sales volume of listed coal companies decreased year-on-year. Against the background of stringent safety supervision in the first half of 2024, coal production in areas such as Shanxi declined significantly. In the first half of 2024, 25 coal-listed companies achieved a production volume of 590 million tons, a year-on-year decrease of 1.2%, with sales volume of 630 million tons, a year-on-year decrease of 1.0%. Excluding China Shenhua Energy, 24 coal-listed companies had a production volume of 420 million tons in the first half of 2024, a year-on-year decrease of 2.3%, and sales volume of 400 million tons, a year-on-year decrease of 4.3%. The decline in profitability is related to the fall in coal prices. Among the 27 coal-listed companies that Sealand focuses on, total operating income for the first half of 2024 was 656.9 billion yuan, a year-on-year decrease of 9%; total net profit was 104.2 billion yuan, a year-on-year decrease of 22.4%; and net profit attributable to the parent company was 82 billion yuan, a year-on-year decrease of 24.5%. In the second quarter of 2024, influenced by the decline in coal prices (the average price of thermal coal in Q1/Q2 of 2024 were 902/848 yuan per ton), the net profit of the 27 coal companies decreased slightly compared to the previous quarter, reaching 39.3 billion yuan, a decrease of 7.9% from Q1 of 2024. In the first half of 2024, excluding companies that have not reported relevant data, the average selling price of coal for 24 coal-listed companies was 604 yuan per ton, a year-on-year decrease of 11%; the average cost of sales was 379 yuan per ton, a year-on-year decrease of 2%; the average gross profit was 225 yuan per ton, a year-on-year decrease of 24%; and the gross profit margin was 37%, a year-on-year decrease of 6.1 percentage points. The main reason for the decline in the profitability of coal enterprises was the price reduction. The decline in revenue led to a slight increase in the expense ratio. In relative terms (using the arithmetic mean method), the expense ratio of the 27 coal-listed companies in the first half of 2024 was 10.7%, a year-on-year increase of 1.4 percentage points. Sealand judges that this is mainly due to the industry's decline in revenue. The sales expense ratio was 0.8%, unchanged year-on-year; the management expense ratio was 7.8%, a year-on-year increase of 1.3 percentage points; and the financial expense ratio was 2.1%, a year-on-year increase of 0.1 percentage points. In absolute terms, for the first half of 2024, the total period expenses of the 27 coal-listed companies amounted to 40.3 billion yuan, a year-on-year increase of 4%. Among them, sales expenses were 5.2 billion yuan, a year-on-year decrease of 13%; management expenses were 28.2 billion yuan, a year-on-year increase of 7%; and financial expenses were 7.6 billion yuan, a year-on-year increase of 5%. Industry profit indicators have also declined. Looking at the sales gross profit margin, the average value for the 27 coal-listed companies in the first half of 2024 was 30%, a year-on-year decrease of 4.8 percentage points. Looking at the net profit margin, the average value for the 27 coal-listed companies in the first half of 2024 was 11.5%, a year-on-year decrease of 5.9 percentage points. Looking at the return on equity, the average value for the 27 coal-listed companies in the first half of 2024 was 4.2%, a year-on-year decrease of 5.1 percentage points. Operating cash flow decreased year-on-year, while the debt ratio continued to decrease. The 27 coal-listed companies had a total operating cash flow of 139.5 billion yuan in the first half of 2024, a decrease of 1% compared to the previous year. As of the mid-year report of 2024, the total interest-bearing debt of the 27 coal-listed companies was 458.8 billion yuan, unchanged from the previous year. The average asset-liability ratio was 52%, a year-on-year decrease of 1.8 percentage points. Excluding China Shenhua Energy, the total operating cash flow of the 26 coal-listed companies in the first half of 2024 was 94.8 billion yuan, a decrease of 8% year-on-year. As of the mid-year report of 2024, the total interest-bearing debt of the 26 coal-listed companies was 415.5 billion yuan, a decrease of 2% year-on-year, and the average asset-liability ratio was 53%, a year-on-year decrease of 1.8 percentage points. Overall, due to the decline in profitability, the operating cash flow of these companies has decreased, but most companies focus on debt management, leading to a continued decrease in the asset-liability ratio and further solidification of the overall asset quality. Investment strategy: Overall, in the first half of 2024, with the decline in coal prices and production, the performance of listed companies generally showed a decline. However, it is worth noting that the average sales gross margin of the 27 coal-listed companies in the first half of 2024 was 30%, and the average net profit margin was 11.5%. Their profitability is still strong and returning to a reasonable level. At the same time, the asset-liability ratio of listed companies further decreased, solidifying the quality of their assets. Companies such as Shaanxi Coal Industry (with a mid-term dividend of 10%), China Coal Energy (with a mid-term dividend of 30%), Inner Mongolia Dian Tou Energy Corporation (with a mid-term dividend of 3.8%), and Shanghai Datun Energy Resources (with a mid-term dividend of 30.65%) have implemented mid-term dividends to further reward investors. In the long term, during the energy transition process, the smooth operation of the energy system needs to be supported, and to achieve this, safe, stable, and cost-effective coal-fired power generation is undoubtedly the best choice. In the medium to long term, the dominant position of thermal power generation in the field of electricity generation will not change. In extreme situations, its position may even be further strengthened. During the "14th Five-Year Plan" period, the capacity of thermal power generation units increased significantly year-on-year, and thermal power production is still showing a continuous growth trend, playing a decisive role in driving coal demand. However, the procedures for coal mine exploitation are complex, the construction and production cycle is long, and the cost of building new mines has increased significantly. The willingness of mainstream coal enterprises to build new mines is still weak, and the industry has basically reached a state of high production capacity load.After experiencing capacity expansion over the past two years, the space for capacity expansion has greatly reduced. In addition, resource-exhausted mines in eastern regions and elsewhere continue to exit, and the constraints on industry supply capacity remain unchanged. It is recommended to grasp the value attributes of the low-position coal sector and maintain a "recommendation" rating for the coal mining industry.Recommended coal stocks to pay attention to: China Shenhua Energy (601088.SH, high proportion of long-term coal contracts, stable performance with high dividends); Shaanxi Coal Industry (601225.SH, excellent resource endowment, stable performance with high dividends); China Coal Energy (601898.SH, high proportion of long-term contracts, undervalued); Yankuang Energy Group (600188.SH, large overseas coal mining assets, high dividend elasticity); Inner Mongolia Dian Tou Energy Corporation (002128.SZ, growth in coal, electricity and aluminum, combined stability and elasticity); Jinneng Holding Shanxi Coal Industry (601001.SH, abundant net monetary funds, potential for improving performance); China Coal Xinji Energy (601918.SH, continuous deepening of coal and electricity integration, high investment value in stable profits); Shanxi Coal International Energy Group (600546.SH, low coal mining costs, strong profitability with high dividends); Guanghui Energy (600256.SH, driven by both coal and natural gas, smooth logic for capacity expansion). Recommended metallurgical coal stocks to pay attention to: Huaibei Mining Holdings (600985.SH, undervalued regional leading coal company in coking coal, still room for growth in coal chemical industry); Pingdingshan Tianan Coal Mining (601666.SH, leading coking coal company in the central and southern regions with high dividends, convertible bonds issued); Shanxi Lu'an Environmental Energy Development Co., Ltd. (601699.SH, high market share in coal, great performance elasticity); Shanxi Coking Coal Energy Group (000983.SZ, leading company in coking coal industry, target of Shanxi state-owned enterprise reform). Recommended coal + electrolytic aluminum stocks to pay attention to: Henan Shenhuo Coal & Power (000933.SZ, coal and electricity integration, elastic target for electrolytic aluminum). Recommended anthracite stocks to pay attention to: Shanxi Huayang Group New Energy (600348.SH, layout of sodium-ion batteries, resonance of new and old energy); Shanxi Lanhua Sci-Tech Venture (600123.SH, excellent resource endowment, high-quality anthracite target). Risk warnings: 1) Economic growth may be lower than expected; 2) Risk of policy control measures exceeding expectations; 3) Risk of continuous replacement by renewable energy; 4) Risk of coal import influence; 5) Risk of companies' performance falling short of expectations; 6) Risk of coal price fluctuations.