Since 2024, the Hang Seng Index is still consolidating at the bottom, and many sectors and individual stocks are still struggling in a violent consolidation, but the performance of the coal sector is still strong. Since the beginning of this year, the coal sector of Hong Kong stocks has risen by 22%, exceeding the annual increase of 16% last year.
Judging from the trend of individual stocks, relatively small companies such as South Gobi (01878) and China Qinfa (00866) have doubled their stock prices this year. Leading companies such as China Shenhua (01088), Yankuang Energy (01171) and China Coal Energy (01898) achieved 22.24%, 19.95% and 16.2% respectively during this period, among which the share price of China Shenhua, the "first brother" in the industry, has recently hit a record high.
What is the reason behind the continued popularity of the coal sector, and how long can such a "black gold market" last?
Coal prices fell and performance was under pressure
Judging from the performance trend, 2023 is actually not a bumper year for coal companies. According to data from Guosen Securities, the overall revenue of the coal sector in 2023 will decline by 10.49% year-on-year, and the net profit attributable to the parent company will decline by 26.15% year-on-year.
According to Wind data, 20 companies in the Hong Kong stock coal sector released their 2023 annual results, of which only 5 companies achieved positive net profit growth, namely Mongolia Energy, Anyu Asia, Mongolian Coking Coal, Yi Bulk and China Coal Energy. Among the companies with declining net profits, Huili Resources and China Shenhua fell less, -7.31% and -11.38% respectively.
Zhitong Financial APP learned that among the top targets in the industry, the revenue performance of the three major enterprises of China Shenhua, Yankuang Energy and China Coal Energy was under pressure during the period, down 0.39%, 23.46% and 12.5% year-on-year respectively, achieving revenues of 343.074 billion yuan (RMB, the same below), 118.892 billion yuan and 192.969 billion yuan respectively. On the earnings side, the performance of these three companies is differentiated.
As the company with the smallest decline in revenue among the three major enterprises, China Shenhua relied on the integrated development and integrated operation mode of production, transportation and marketing of its coal, power, transportation and coal chemical businesses during the period, and with the effective synergy between various business segments, the company's revenue performance was stable, and it also hedged the impact of some profit declines.
During the period, the sales revenue of the coal sector reached 262.868 billion yuan, a slight decrease of 2.3% year-on-year. Among them, the domestic sales price of the company's coal sector was 581 yuan/ton, a year-on-year increase of -8.9%, and the decline in the company's sales price was smaller than the decline in coal prices. The company's annual long-term agreement accounts for 80% of its self-produced coal, and the higher long-term agreement ratio makes the company's coal price volatility more moderate. In terms of power business, the company's annual electricity sales revenue reached 85.616 billion yuan, an increase of 9.8% year-on-year. The gross profit margin of the segment increased by 2.6% to 16.9%, and the total profit increased by 34% to 10.6 billion yuan.
As the only company among the three leading enterprises to achieve profit growth, China Coal Energy continues to optimize its industrial layout and build an industrial chain of "coal-coal-power-coal-chemical-new energy". During the period, the company's self-produced coal sales volume with high gross profit per unit increased, with sales volume reaching 133.91 million tons, an increase of 11.3% year-on-year, and the gross profit margin of the company's coal segment only decreased slightly by 0.5 percentage points to 24.9%. In addition, although the company's coal chemical sector increased in volume and decreased in price, it benefited from the improvement of gross profit margin and drove the profit of the segment to increase year-on-year. During the period, the company's coal chemical segment achieved a gross profit of 3.295 billion yuan, a year-on-year increase of 8.8%, and a gross profit margin of 15.4%, an increase of 2.1 percentage points year-on-year.
Orient Securities pointed out that in the unfavorable external environment of the year-on-year decline in coal prices in 2023, one of the reasons for the year-on-year increase in the company's performance is the increase in the production and sales of coal and coal chemical products, which stabilized the performance by volume and price. In 2023, the company's self-produced commercial coal output will be 134.22 million tons, a year-on-year increase of 12.6%, and the output of major coal chemical products will be 6.04 million tons, a year-on-year increase of 6.5%. In addition, the decrease in the company's asset impairment loss compared with 2022 is another major reason for the company's performance improvement.
In comparison, Yankuang Energy's performance is much inferior. During the period, the company's revenue and net profit decreased by 23.46% and 41.55% respectively. If the one-time expenses mainly used for asset impairment are excluded, the company's recurring net profit was 17.1 billion yuan, a year-on-year decrease of more than 48%. Although Yancoal Australia increased significantly during the period, its output increased by 3.977 million tons compared with 2023, a year-on-year increase of 13.51%. However, in 2023, the comprehensive gross profit margin of the company's coal business will decline, down 7.93 percentage points year-on-year to 51.65%. The comprehensive selling price of the company's commercial coal was 803.15 yuan/ton, a year-on-year decrease of 25.49%. At the same time, the company's coal chemical business has also experienced a downward trend of declining prices and pressure on profitability. During the period, the company's chemical business achieved a gross profit margin of 19.95%, a year-on-year decrease of 1.23 percentage points.
On the whole, in 2023, when coal prices continue to decline, the revenue of leading coal companies has declined to varying degrees, but some companies still rely on their excellent industrial layout to resist the downward pressure of the industry. Although the overall performance of the industry has been under pressure, the market's enthusiasm for coal stocks has not waned. The reason for this is related to the high dividend characteristics of the coal industry.
The new "National Nine Articles" are coming, and the high-dividend sector has attracted attention again
Zhitong Financial APP noticed that since 2022, with the sharp rise in global interest rates, in an uncertain market environment, funds are chasing certainty, and the market has favored companies with stable fundamentals and high margin of safety, and high-dividend stocks have become the target sought after by the market.
In fact, in 2023, affected by earnings fluctuations, the total dividends of most coal companies will decline. According to the statistics of Guosen Securities, among the top targets, only one coal company, China Coal Energy, has achieved an increase in total dividends, from 5.476 billion yuan in 2022 to 5.860 billion yuan in 2023. The total dividends of China Shenhua and Yankuang Energy have declined to varying degrees.
However, from the perspective of dividend rate, China Shenhua is the most conspicuous, and its dividend ratio is significantly higher than that of other listed companies with dividends of more than 10 billion yuan, with a cash dividend of 44.903 billion yuan, accounting for 75.22% of the company's net profit attributable to the parent company in 2023 and 72.8% in 2022. Yankuang Energy's dividend rate in 2023 is around 60%, and the company said that the cash dividend ratio from 2023 to 2025 will not be less than 60%. In contrast, China Coal Energy's dividend rate is low, around 30% in recent years.
It is worth mentioning that with the recent emphasis on dividends, dividends and mandatory dividends in the new "National Nine Articles", the advantages of the coal sector, a high-dividend sector, have been further strengthened.
In this regard, China Development Bank Securities pointed out that in recent years, the phenomenon of low valuation levels of listed central state-owned enterprises has attracted widespread attention from the market. Encouraging and stimulating the willingness to pay dividends and promoting the improvement of dividend levels is an important channel to enhance investors' recognition of listed companies, and it is also a matter of concern for regulators. According to the data, the number of listed companies that have implemented dividends for five consecutive years from 2018 to 2022 has reached 1,600. Among them, in the past five years, there are 220 listed central enterprises that have continuously implemented dividends, accounting for 50% of all listed central enterprises, and local state-owned enterprises that have continuously paid dividends account for more than 40%. Compared with other industries, in this round of market, the performance of coal, which has benefited from the optimization of the industrial pattern, is more prominent. However, it stressed that due to the relatively high congestion of the coal industry, the sustainability of the follow-up market may be weakened.
According to the "2023 Annual Report on the Development of the Coal Industry" released by the China Coal Industry Association a few days ago, it is comprehensively judged that the supply and demand of the coal market will maintain a basic balance in 2024, and the medium and long-term contract system will effectively play the role of "ballast stone" and "stabilizer" for the smooth operation of the coal market.
Debang Securities pointed out that at present, coal mine safety production has become the focus of national work, safety inspections are expected to remain high-pressure, capacity utilization is restricted, and supply contraction is expected to be strengthened. The fundamentals and expectations of the coal industry have changed significantly, and the third quarter of 2023 is expected to be the low point of the annual performance, and the industry's earnings in 2024 may increase year-on-year.
Cinda Securities said that it is currently in the early stage of a new round of upward cycle of the coal economy, and the fundamentals and policies resonate, and it is time to allocate the coal sector on dips at this stage. At present, the coal sector has the attributes of high performance, high cash and high dividends, superimposed with the characteristics of high prosperity, long cycle and high barriers in the industry, as well as low valuation levels and inverted primary and secondary valuations, and the coal sector has both offensive and defensive investment.
On the whole, the coal stock market that began in the second half of 2023 continues to this day, which is inseparable from the company's advantages in this sector with high dividends and high dividends. With the release of the new "National Nine Articles", the coal sector was ignited again. In the fundamental market, CITIC Securities analysis pointed out that the average year-on-year decline in net profit of the coal sector in the first quarter of this year was 25%, and the sector has gradually digested the expectation of declining performance. In the future, with the gradual stabilization of coal prices and the expectation of improved demand in the second quarter, the short-term sector is expected to recover in shocks.