SHAANXI COAL INDUSTRY(601225)：RESULTS IN LINE; DIVIDEND PAYOUT SOLID AND SUSTAINED-格隆汇

机构：中金公司
研究员：Yan CHEN

2023 and 1Q24 results in line with our expectations
Shaanxi Coal announced 2023 and 1Q24 results: In 2023, revenue rose 2.4% YoY to Rmb170.9bn, net profit attributable to shareholders fell 39.7% YoY to Rmb21.2bn, and recurring net profit was Rmb24.7bn, down 16.9% YoY. In 1Q24, revenue fell 9.7% YoY to Rmb40.4bn, net profit attributable to shareholders fell 32.7% to Rmb4.65bn, and recurring net profit fell 26.3% to Rmb5.35bn, in line with our expectations.
2023 results review:
1) Output continued to increase. In 2023, the commercial coal output rose 4.1% YoY to 164mn tonnes, and total sales volume increased 12.6% YoY to 253mn tonnes, with sales volume of self-produced coal rising 5.27% YoY to 164mn tonnes.
2) Coal prices declined. ASP of self-produced coal fell 14.12% YoY to Rmb575/t in 2023. The spot price of Qinhuangdao 5,500kCal thermal coal fell 24% YoY to Rmb972/t.
3) Cost per tonne of coal fell. In 2023, the all-in cost per tonne of raw coal fell Rmb22.82 or 7.14% YoY to Rmb296.59, with production safety expenses rising Rmb11.79 or 52.45% YoY, material expenses, maintenance and repair expenses, outsourcing business expenses, and related taxes and surcharges falling Rmb8.77, Rmb4.05, Rmb6.58, and Rmb9.44, or falling 28.23%, 25.23%, 23.25%, and 12.76% YoY.
4) In 2023, gross profit of self-produced coal fell Rmb10.43bn YoY and per-tonne gross margin of self-produced coal dropped 19% YoY to Rmb377.
5) Investment income fell 83.04% YoY to Rmb2.47bn in 2023, mainly due to the increase in investment income in 2022 due to changes in accounting standards of Longi Green Energy. Gains from fair value changes rose Rmb563mn YoY to -Rmb4.60bn, mainly due to lower gains and losses from fair value changes of trust assets. As of end- 2023, the financial assets measured at fair value stood at about Rmb18.5bn, including Rmb7.92bn from private equity funds and Rmb7.33bn from stocks.
1Q24 results review:
1) Output edged up. In 1Q24, coal output rose 1.49% YoY and 5.06% QoQ to 41.45mn tonnes, and sales volume rose 9.16% YoY but fell 7.94% QoQ to 61.47mn tonnes, with sales volume of self-produced coal up 1.17% YoY and 0.7% QoQ to 40.91mn tonnes.
2) Revenue per tonne of coal fell 17.3% YoY but rose 1.1% QoQ in 1Q24, and cost per tonne fell 11.6% YoY but increased 8.4% QoQ.
3) Investment income dropped Rmb176mn YoY to Rmb390mn, income from fair value changes was -Rmb917mn, and unrecognized loss widened Rmb47.72mn QoQ.
Trends to watch
Dividend payout is sustainable. The firm plans to distribute a cash dividend of Rmb12.75bn for 2023, maintaining a dividend payout ratio of 60%, implying a dividend yield of 5.2% based on the current share price. Given the firm’s net cash position and ample cash flow, and limited capex (capex in 2024 to be Rmb2.19bn lower than that in 2023), we believe the firm will maintain stable dividend payout.
Financials and valuation
We keep our 2024e earnings forecast unchanged, but raise our 2025 earnings forecast 5% to Rmb23.9bn due to adjustments in assumptions such as costs of the coal business.The stock is trading at 10.3x 2024e and 10.2x 2025e P/E. We maintain an OUTPERFORM rating and raise our TP 3.8% to Rmb27, implying 11.0x 2024e and 10.9x 2025e P/E and offering 7% upside.
Risks
Demand recovery disappoints; supply growth beats expectations.