Debang Securities: China Coal Marketing Association proposes the introduction of high-quality production capacity, with expected improvement in profits.

Debon Securities released a research report stating that the September 2024 Political Bureau meeting will start a new chapter of economic support. Combined with the continuous weakening of supply in the past two years, the fundamentals of the coal sector have once again been confirmed at the bottom. Market concerns about EPS are expected to gradually dissipate. Combined with the comprehensive implementation of state-owned enterprise market value management by the State-owned Assets Supervision and Administration Commission in 2024, the China Securities Regulatory Commission promoting high-quality dividends for listed companies, and the People's Bank of China guiding banks to provide loans to listed companies and major shareholders to support repurchases and stock holdings, the dividend value of coal stocks is expected to be further highlighted. Event: On February 8, 2025, the China Coal Industry Association and the China Coal Transportation and Marketing Association issued a call to action. Faced with the rapid decline in coal market prices and the continuous decrease in industry profits, the call to action proposes initiatives for the development of the coal industry in five dimensions: "Strict implementation of long-term coal contracts" "Promoting coal production control" "Promoting all raw coal washing" "Controlling the import of inferior coal" "Strengthening industry self-discipline". Debon Securities' main points are as follows: Strict implementation of long-term coal contracts to reduce irrational coal price fluctuations Due to the impact of strong supply and weak demand, coal prices have fallen, reaching a four-year low, with some coal types closing below the annual long-term contracts. The call to action proposes to effectively fulfill the responsibility of ensuring energy supply, strictly implement long-term coal contracts, and solidify the supply and demand foundation of coal. The forced implementation of contracts may help reduce the risk of market irrational fluctuations caused by "coal price decline power plants turning to spot purchases inadequate long-term coal realization rate irrational coal price fluctuations", alleviate concerns about deep coal price declines, and effectively play the role of coal as a "ballast stone" in energy security. Adhere to the concept of safety production, control coal supply in an orderly manner From the inventory level, the current mainstream port inventory is about 74.99 million tons, and the power plant inventory is about 106 million tons, both at near three-year highs. Faced with insufficient downstream effective demand and the issue of high social inventory levels, the call to action proposes that coal enterprises adhere to the concept of safety production, lead the adjustment of production pace, and prevent a severe market oversupply situation. By once again strengthening the principle of safety production priority, avoiding the risk of over-exploitation, coal supply is expected to be controlled in an orderly manner, thereby achieving industry supply-demand balance. Strengthen control of inferior coal imports, improve profits of high-quality capacity In 2024, China imported 540 million tons of coal, an increase of 14.4% year-on-year, reaching a historical high, with brown coal imports accounting for approximately 190 million tons, or about 35% of total coal imports. Brown coal, as the coal type with the lowest degree of coalification, has high moisture content and low calorific value, and is considered as low-quality coal. The current domestic and foreign import prices of inferior coal (calculated based on Indonesian brown coal) are inverted. By strengthening the control of low-price inferior coal imports and usage through the call to action, it is expected to alleviate domestic oversupply pressure to a certain extent, support domestic thermal coal prices, improve profits of high-quality capacity, and promote high-quality development of the coal industry through cooperation with domestic green mining and efforts to promote full coal washing. Investment recommendation: Key areas to watch 1) Flexible coking. Recommended companies include Pingdingshan Tianan Coal Mining, Huaibei Mining Holdings, Shanxi Luan Environmental Energy Dev. Co., Ltd, CHINA RISUN GP. Companies to watch include Shanxi Coking Coal Energy Group, Jizhong Energy Resources, etc. 2) High-quality dividends. Recommended companies include Shaanxi Coal Industry, China Coal Energy, Yankuang Energy Group, Shanxi Coal International Energy Group. Companies to watch include China Shenhua Energy. 3) Long-term incremental growth. Recommended companies include Guanghui Energy, China Coal Xinji Energy, Gansu Energy Chemical, Inner Mongolia Dian Tou Energy Corporation, Beijing Haohua Energy Resource, Wintime Energy. Companies to watch include Guizhou Panjiang Refined Coal, Shaanxi Energy Investment, Jiangsu Xukuang Energy, etc. Risk factors: Slow progress in domestic economic recovery; Overseas import volume exceeds expectations; Infrastructure investment falls below expectations.