CITIC SEC: Market value management guidelines released, coal sector expected to benefit

CITIC Securities released a research report stating that on November 15, the China Securities Regulatory Commission released guidelines on market value management, requiring main index component stocks to establish market value management systems and make special requirements for long-term undervalued companies to disclose valuation improvement plans. CITIC Securities believes that the disclosure of the guidelines will support the dividend style, and the coal sector is expected to benefit. Leading companies in the coal industry have more stable performance and are also main index component stocks, so the benefits may be more obvious. In addition, some undervalued and long-term undervalued companies are also worth paying attention to. The main views of CITIC Securities are as follows: The release of market value management regulatory guidelines is expected to enhance the investment value of listed companies. According to the China Securities Regulatory Commission's official website, on November 15, 2024, the CSRC released the "Guidelines for Listed Companies Supervision No. 10 - Market Value Management" (referred to as the "Guidelines"), encouraging listed companies to promote the investment value of listed companies through various means such as mergers and acquisitions, equity incentives, cash dividends, etc., and make specific requirements for main index component stocks to establish market value management systems and disclose valuation improvement plans for long-term undervalued companies. In addition, compared to the previous consultation draft, the official draft has added content that if a listed company violates the guidelines, the CSRC can take measures such as ordering corrections, regulatory talks, issuing warning letters, etc., and additionally, the main index component stocks have added the CSI A500 Index, the ChiNext medium-cap 200 index. The coal sector is expected to benefit, with leading companies being the most obvious. The "Guidelines" require listed companies to base their efforts on improving company quality, efficiency, and profitability. We believe that the "Guidelines" are more focused on the fundamental aspects of companies, which could provide significant support for the dividend style. The coal sector is part of the dividend style, with overall generous dividends and strong cash flow, and is expected to benefit in the short and medium term. Leading companies in the coal sector have relatively strong performance stability and are also more likely to benefit from the additional requirements of the "Guidelines" for main index component stocks, thus the benefits may be more apparent. Nearly half of the coal companies have dividend yields above 5%, and some companies are currently trading below book value, with a total of six sample companies listed in the CSI 300 and CSI A500 indexes. Risk factors: Delays in the implementation of market value management guidelines; fluctuations in macroeconomic conditions affecting coal prices; and relaxation of safety supervision leading to increased supply. Investment strategy: The release of the market value management guidelines for listed companies on November 15, 2024, provides clear support for the dividend style, and the coal sector as a whole is expected to benefit. We recommend investing in: 1) leading companies in the thermal coal sector with good third-quarter performance and stable earnings; 2) companies in the coking coal sector with high dividend yields and low valuations. In addition, we also suggest focusing on companies with relatively large discounts to book value.