Income continues to increase, with stable expansion of business. China Xuyang (01907) achieves growth through internal development and external expansion.

In economic history, the just past year of 2023 was destined to be an extraordinary year. For the Chinese economy, the theme of this year was to seek "stability" and pursue high-quality development. On one hand, against the backdrop of the unexpected rate hikes by the Federal Reserve and ongoing geopolitical conflicts, the global economy faced shocks, with dramatic fluctuations in commodity prices affecting the pace and strength of the domestic economy's recovery. On the other hand, China stimulated the economy through interest rate cuts, reserve requirement reductions, issuing trillions in government bonds, and lowering the deficit rate, playing an important role in stabilizing and restoring confidence in the domestic economy. Amid various internal and external interferences, the price trends of black products in 2023 could be described as full of twists and turns. Take coking coal as an example - as an upstream product in the coal coke steel industry chain, the past year was a chaotic moment of bottom searching in confusion. With the industry entering an adjustment period, it is the time to test the quality and resilience of enterprises in the industrial chain. Recently, CHINA RISUN GP (01907) disclosed its 2023 annual report. For this global largest independent coking coal producer and supplier, 2023 was indeed full of challenges, but Risun showed strong operational resilience in the face of external pressures, and the financial report also contained many structural highlights... Amidst many internal and external factors, the performance of black products in 2023 by Risun was full of ups and downs. Looking at Risun's 2023 annual report, the company's fundamentals remained stable. Data showed that the company achieved revenue of 46.066 billion yuan, with a growth of 6.8% despite the industry pressure, and set a new income record. Breaking down the revenue structure, during the reporting period, Risun's coking and coke business achieved revenue of 18.077 billion yuan, an increase of 10.4% year-on-year, accounting for about 39.2% of the total revenue. It is worth mentioning that the average selling price of Risun's coking coal products during the period was 2201.4 yuan per ton, a significant decrease compared to 3041.7 yuan per ton in the same period last year. However, due to the consolidation of Risun Zhongran, the company's coking and coke business still maintained overall growth. Risun's other core business, fine chemical sector, also achieved strong performance in 2023. Data showed that the revenue of this business in the period was 18.681 billion yuan, with a year-on-year increase of 21.1%, accounting for about 40.6% of revenue. It is understood that the growth of this business was attributed to the completion and operation of the second phase of the Caprolactam project in Cangzhou, as well as the contribution of the synthetic ammonia and methanol production lines after the consolidation of Risun Zhongran. It is worth mentioning that Risun's operational management and service business experienced a significant growth in 2023, with the revenue increasing from 117 million yuan in the same period last year to 2.017 billion yuan, an increase of 1625.2%. It is reported that this was mainly due to the addition of the operation and management of the 100,000-ton benzene hydrogenation project in Shanxi this year by Risun, and the strategic cooperation agreement signed with Cornell Group in October last year to operate and manage its 300,000-ton aniline project. In the past year, due to the lack of trading in the black product market, Risun proactively contracted its trading business. Looking at the whole year, the trading business of Risun achieved revenue of 7.168 billion yuan, accounting for about 15.6% of the total revenue. In terms of profits, affected by weak end demand, the prices of coal coke products such as coking coal experienced a significant decline in 2023 compared to the same period last year, putting pressure on Risun's profitability. Data showed that Risun achieved a gross profit of 3.325 billion yuan for the year, with a gross profit margin of about 7.2%. However, the gross profit margin of the company's fine chemical business increased against the trend by 0.3 percentage points to 7.3%, mainly due to the improvement of the cost of the raw material caprolactam process at the second phase of the project in Cangzhou. Despite industry headwinds, Risun China remained committed to rewarding investors in the secondary market. According to the annual report, Risun plans to distribute a final dividend of 1.2 cents per share to shareholders, with a total payout of approximately 53.09 million yuan. Endogenous and extension of energy for a new cycle Since 2024, due to the slow pace of steel mills restarting and weak supply and demand, recent price reductions in coking coal have been implemented. In addition, the market still has expectations for the sixth round of price adjustments, with the key to predicting price trends in the medium and long term still depending on whether there will be further improvement in demand for coking coal. During the market bottoming period, "cultivating internal strength" may be a good choice for laying the foundation for the next cycle. Looking back at China Risun, 2024 and 2025 will be the concluding stages of the company's five-year plan from 2021 to 2025. For Risun, it is crucial in the following period to promote the long-term development of traditional energy industries and hydrogen energy industries, solidify differentiated competitive advantages to achieve high-quality long-term growth. In the traditional advantageous business areas, Risun's business expansion is expected to accelerate further in 2024. Currently, Risun is developing and constructing a coking coal project with an annual capacity of 1.8 million tons in Pingxiang Production Base in Xiangdong Industrial Park. In addition to launching new projects, Risun also plans to seek potential operation and management and acquisition projects both domestically and internationally. According to publicly available information, Risun aims to expand its coking-related capacity to 30 million tons by 2025, with a market share of 10%. In the field of fine chemicals, China Risun will focus on potential new markets for new types of fine chemical products with high demand and relatively low domestic supply, opening up new business growth points. In the medium to long term, Risun will build a globally leading new materials industry based on cyclohexanone, through self-construction and hosting, to establish a high-precision nylon new materials base. In the emerging field represented by hydrogen energy products, China Risun will continue to focus on the Beijing-Tianjin-Hebei region, laying out the entire industrial chain from production, storage, transportation, blending, research, to utilization. Next, Risun will advance the construction of the hydrogen long-distance pipeline from Dingzhou to Gaobeidian to Beijing, reduce the cost of hydrogen transportation, and establish a joint venture company to expand the fleet of hydrogen transportation vehicles.At the same time, the company will continue to promote the construction of projects such as liquid hydrogen, natural gas mixed hydrogen, and hydrogen energy demonstration. In addition, Xuyang also plans to invest in the construction of hydrogen energy product projects in Pingxiang production park.Based on past performance, China Risun's development strategy focusing on internal and external growth, self-built projects and operation management has obviously achieved good results. From an industry perspective, whether in coal or chemical products, the cyclical nature is prominent, and during the low cycle, Risun will focus more on "internal cultivation" such as expanding capacity, cultivating new businesses, etc., which will help smooth out performance fluctuations, create new growth drivers, and ultimately benefit from stronger growth momentum when the new industry cycle arrives in the future. With a solid foundation and high certainty of long-term growth, China Risun has also won the long-term favor of the market. An example is that as of now, the number of shares of China Risun held by the Hong Kong Stock Connect is about 328 million shares, accounting for approximately 7.41%; compared to 2.03 billion shares, and 4.58% in early 2023. In other words, over the past year, Southbound funds have been continuously buying shares of China Risun. In addition to the continuous increase in long-term holdings, China Risun was also included in the MSCI Global Small Cap Index of Chinese stocks at the end of last year, which further demonstrates international capital's optimism about the long-term investment value of CHINA RISUN GP.