CITIC Securities coal performance outlook for 2024: decline in line with expectations, recommending to buy dividend leaders at lower prices.

CITIC SEC issued a research report stating that in the past two weeks, the leading companies in the coal sector have been adjusting significantly, with the targets with larger adjustments being those with more concentrated institutional holdings in the previous period. However, based on the estimated performance expectations, the valuation and dividend levels of these leading companies still remain attractive. It is expected that when the bottom of coal prices is clear and dividend expectations stabilize, the leading companies in the sector will still attract incremental funds in a dividend-oriented style. If economic growth exceeds expectations in the future, there may also be trading opportunities in the sector driven by expected improvements. Based on the performance expectations for 2024, it is recommended to focus on: 1) companies with historically leading dividend levels and low volatility in the industry; 2) companies with a high proportion of long-term contracts in coal and small performance fluctuations; 3) companies under central enterprises that are trading below net asset value, or benefiting from market value management work. The main points of CITIC SEC are as follows: In 2024, the prices of various types of coal will continue to decline, with an average decrease of 14%, with the largest decline in anthracite prices. In 2024, the industry benchmark coal price - the average price of 5500 kcal power coal at ports is about 861 yuan/ton, a decrease of about 11% compared to the previous year, with lower volatility. The average price of pithead power coal generally decreased by 8-15%. The average price of coking coal in 2024 fell by around 9% year-on-year, while the average price of anthracite fell by an average of 21%, and the average price of coke fell by about 17% year-on-year. Overall, the average coal prices in 2024 generally declined, with prices trending downwards. It is expected that the net profit of listed companies in the sample in 2024 will decrease by 20% year-on-year, but the dividend yield may still be attractive. Data from the National Bureau of Statistics shows that in the first 11 months of 2024, the total profit of the coal mining and washing industry above a certain scale in the country was 564.05 billion yuan, a year-on-year decrease of 22.43%. Based on the sample of listed companies' net profit, it is estimated that the net profit of the major coal mining listed companies tracked will decrease by 14.2% in 2024 (if excluding China Shenhua Energy, which has a large market capitalization, the estimated decrease is 20%), with the net profit growth rates of power coal/coking coal/anthracite companies being -7%/-45%/-59% respectively. Based on the 2024 net profit expectations, assuming that the sample companies maintain the dividend payout ratio level of 2023, the average dividend yield is expected to reach 5.1%, with about 1/3 of companies currently having a dividend yield exceeding 6%. Coal price outlook for 2025: The central price of coal is likely to decline, but has preliminary cost support. It is forecasted that the industry supply may be more ample in 2025, putting pressure on the central price of coal to decrease. The central price of 5500 kcal power coal at Qinhuangdao Port is expected to be around 820 yuan/ton, a decrease of about 4% year-on-year, with the lowest point of the year possibly occurring in Q2; the average price of coking coal for the whole year is expected to be around 1650 yuan/ton, a decrease of about 12% year-on-year, or weaker than power coal. However, it is also believed that coal prices still have preliminary cost support, mainly from the import costs of high-grade coal from Australia and the cost line of delivering coal from Xinjiang to central and Ningxia regions, with the expected bottom of coal prices being above 700 yuan/ton within the year. Risk factors: Macroeconomic fluctuations affecting coal demand and prices; concentration of new capacity releases suppressing coal prices; systematic decline in overseas energy prices; impact of import and export policies of various countries on coal prices.