The decline in performance does not change the fundamental advantages. The low valuation and high dividends of the coal sector still have appeal.

The coal price has been falling all the way, dragging down the entire coal sector's performance in 2024. Among the listed coal companies that have already disclosed their performance forecasts, a significant decline in profitability seems to have become the industry norm. Entering 2025, coal prices continue to be under pressure. At the same time, the overall undervaluation and high dividends of the coal sector still have considerable appeal. If downstream demand improvement expectations emerge in the future, the sector still has plenty of opportunities for bottoming out. Looking ahead, what investment opportunities does the coal sector have, and which high-quality companies are worth paying attention to? Overall industry performance is under pressure: most are experiencing declining profits, and nearly half are in the red. Affected by factors such as the fall in coal prices and weak demand, the performance of most coal companies is under pressure. According to statistics, out of 37 listed coal companies on the A-share market, 19 companies have announced their 2024 annual performance forecasts. Among them, 10 companies achieved profits, while 9 incurred losses. Looking in detail, only China Shenhua Energy (01088) has maintained its profitability, while Liaoning Energy Industry (600758.SH) achieved high net profit growth against the wind. The rest of the companies all experienced significant declines in performance. Among the 19 companies, the top three in terms of profit scale are China Shenhua Energy, Shanxi Coking Coal Energy Group (000983.SZ), and Shanxi Lu'an Environmental Energy Dev.Co., Ltd (601699.SH), with estimated net profits ranging from 57 billion yuan to 28.51 billion yuan and 23 billion yuan in 2024, respectively. The companies with the largest loss are Shaanxi Heimao Coking (601015.SH), Shanxi Meijin Energy (000723.SZ), and Henan Dayou Energy (600403.SH), with estimated losses of up to 11.8 billion yuan, 11.5 billion yuan, and 11.16 billion yuan in 2024, respectively. Looking at the current situation where the performance of most companies in the coal sector is under pressure, this mainly attributed to the continuous downward trend in coal prices in 2024. In a context of loose coal supply and demand, the prices of various types of coal in 2024 have all experienced a decline of more than 10%, including thermal coal and anthracite. From the supply side, although the year-on-year growth rate of domestic raw coal production slowed down in 2024, with production for some months affected by local special rectification activities and other factors, there were instances of a year-on-year production decline. However, the monthly production overall remained at historically high levels, and the overall annual production continued to show a positive growth trend. On the import side, according to the data from the General Administration of Customs of the People's Republic of China, the total coal import volume in China reached 543 million tons in 2024, a year-on-year increase of 14.41%, reaching a new historical high for coal imports for the year. In terms of demand, due to ongoing pressure on economic growth, the year-on-year growth rate of domestic coal consumption in 2024 narrowed. According to data released by the China Coal Industry Association, the total coal consumption in China in 2024 was 4.89 billion tons, a year-on-year increase of 5.16%, with a decrease of 2.73 percentage points in the year-on-year growth rate. Despite the continuous decline in coal prices, some companies have shown resilience in the face of headwinds. For example, China's largest coal production and sales company, China Shenhua Energy, is expected to achieve a net profit of 57 to 60 billion yuan in 2024, a decrease of 2.7 to an increase of 3 billion yuan year-on-year, representing a decrease of 4.5% to an increase of 0.5%. China Shenhua Energy mainly operates in seven sectors: coal, electricity, new energy, coal chemical industry, railways, ports, and shipping. It leads the industry in terms of operating income, coal business income, and coal production. In 2023, these three indicators reached 343.074 billion yuan, 273.306 billion yuan, and 3.245 billion tons, respectively. Starting with coal mining business, China Shenhua Energy has formed an integrated operating model of coal "production-transportation (railways, ports, shipping)-conversion (power generation and coal chemical industry)", with advantages including complete chains, high efficiency, safety and stability, and low-cost operation. China Shenhua Energy is far ahead in terms of profit scale, while Shanxi Coking Coal Energy Group and Shanxi Lu'an Environmental Energy Dev.Co., Ltd have slightly less impressive performance. Shanxi Coking Coal Energy Group saw a decrease in coal product sales and comprehensive selling prices in 2024, and increased expenditure due to factors such as changes in geological conditions in some mines that impacted profit performance. Shanxi Lu'an Environmental Energy Dev.Co., Ltd stated that the company's performance was affected by geological structures and mining connections in some production mines, resulting in a year-on-year decrease in raw coal output and sales of commercial coal. Additionally, factors such as an increase in resource tax rates and changes in employee salaries led to an increase in product costs and expenses. It's worth mentioning that Shanxi Coking Coal Energy Group is currently the largest and most diversified coking coal production company in China and is also an internationally influential enterprise in coking coal production, processing, and marketing. Its coking coal production and sales volume are among the highest in the world. Shanxi Lu'an Environmental Energy Dev.Co., Ltd is a world-class expert in special injection coal, being the first company to apply lean coal and lean coal to blast furnace injection. It possesses a relatively scarce blast furnace injection coal technology in the industry. Injection coal is an efficient, low-cost blast furnace burden widely used in the steel industry, and its application has steadily increased in recent years.With the gradual depletion of high-quality coking coal resources in our country, the position of blast furnace pulverized coal in the steelmaking process is constantly improving.It is worth mentioning that among the many companies that have disclosed performance forecasts, Liaoning Energy Industry has achieved a stellar performance against the headwinds, with an estimated net profit attributable to shareholders of 136 million to 204 million yuan, an increase of 469.51% to 754.27% year-on-year. Liaoning Energy Industry's main business covers various core energy fields such as coal, electricity, and heat. In terms of location, the company's main mines are located in the surrounding areas of Shenyang City, Liaoning Province, making it the largest coal supplier with the shortest transportation distance to steel enterprises in Liaoning Province and surrounding regions, belonging to the regional industry leader. In addition, Shanxi Lanhua Sci-Tech Venture, which owns the iconic Shanxi brand "Orchid" coal product, is also unique. The company mainly produces mines located in the hinterland of the largest anthracite base in the country, the Qinshui Coalfield. The proven reserves of anthracite in this coalfield are 27.348 billion tons, accounting for 54.65% of Shanxi Province's anthracite reserves and 25.76% of the national anthracite reserves. Over 80% of the company's coal reserves are high-quality anthracite, highlighting its resource advantage. When will the coal industry usher in a new upturn cycle? By 2025, coal prices continue to face downward pressure, and the industry outlook remains bleak. Take thermal coal as an example, on February 20, the CCTD Bohai Rim thermal coal spot reference price was 733 yuan per ton, down 25 yuan per ton from February 11, reaching the lowest point since May 2021; prices of coke, coking coal, and other types of coal remain under pressure. A report by the China Coal Distribution and Marketing Association showed that in early February, the comprehensive sales price of coke and coking coal was 1374 yuan per ton, a decrease of 63 yuan per ton from the same period last month, a decrease of 4.4%, and a decrease of 810 yuan per ton compared to the same period last year, a decrease of up to 37.1%. Industry insiders point out that the overall supply-demand relationship in the coal industry is still relatively loose, so it is highly likely that the coal price center will continue to move downward. After the Spring Festival, coal mine supply recovered quickly, industrial electricity consumption recovery was slow, power plant inventories were high, and multiple factors led to continued weak demand for thermal coal. Looking ahead, CITIC SEC believes that although there is downward pressure on coal prices, there is still preliminary cost support, mainly due to the import cost of high-calorific coal from Australia and the cost of transporting coal from Xinjiang to central and Ningxia regions. It is expected that the bottom of the coal price in the year may be above 700 yuan per ton. Yang Jie, Deputy Director of the Research Department of Yi Coal Research Institute, also pointed out that the decline in coal prices in this round requires proactive production cuts in domestic coal mines to determine the bottom. "It is expected that coal prices will bottom out in March to April this year, then fluctuate upwards. The peak season in the summer may not be strong, and the high point may come in August to September, depending on the strength of domestic policies in the second half of the year and the recovery of real estate and infrastructure." Despite the short-term decline in coal prices and the continued adjustment of the coal sector, the characteristics of undervalued coal enterprises with high dividends still have considerable attractiveness. Data shows that as of February 7, 2025, the coal industry's dividend yield in the past 12 months reached 6.41%, second only to the banking sector's 6.51%, ranking second. As of February 7, 2025, 8 companies in the coal industry had a dividend yield of over 10% in the past 12 months, such as China Shenhua Energy, Shaanxi Coal Industry, China Coal Energy, Yankuang Energy Group, and Pingdingshan Tianan Coal Mining, with dividend yields of 5.81%, 7.18%, 6.87%, 10.25%, and 10.73%, respectively. According to the latest announcement, China Shenhua Energy is expected to cash dividend at least 65% of the net profit attributable to shareholders in each year from 2025 to 2027, and the latest dividend yield will further rise to around 5.9%. From the perspective of the secondary market, since the beginning of 2025, sectors such as semiconductors and AI have shown strong performance, and the market style has shifted from value to growth, with average performance in the dividend sector under capital outflows. However, the long-term investment value of the dividend sector remains unchanged, and the coal sector is currently in a low valuation, showing good opportunities for bottom fishing. Leading companies such as China Shenhua Energy and high-quality coal enterprises with scarce resources and technological advantages such as Shanxi Lu'an Environmental Energy Development Co., Ltd. and Shanxi Lanhua Sci-Tech Venture are still worth long-term attention.