Let's talk about coal,
It suddenly collapsed, falling 8% in 3 days.
Even the dividends were pulled down, falling by 3.5% in 3 days.
01
Why is coal falling?
Many people attribute the reason to the decline in performance.
Take a look at the data of the top 10 coal companies by market capitalization,
In 2023, the performance of China Shenhua, the "coal leader", will decline by 14%.
The performance of the second and third, Shaanxi Coal Industry and Yankuang Energy fell by 39% and 35% respectively.
Put the 10 together, they will earn 201.1 billion yuan in 2022, and only 153.1 billion yuan will be left in 2023, a decrease of 24%, and the profit logic will collapse.
There is also the logic of dividends.
Where does the money come from?
From profit.
Therefore, when the profit decreases, the dividend money will also be less.
This is the dividend plan of the top 10 coal enterprises.
China Shenhua can still maintain its dignity, and its dividends and performance have declined in the same proportion.
Yankuang Energy will not install it directly, and the dividend ratio has dropped from 56% to 30%, which is more than 10 billion less...
The logic of profits and dividends collapsed together, and the stock price should not fall~
02
Is there any truth to the above statement?
It looks very reasonable, but I forgot one important thing - the most important thing in the capital market is expectations.
The sharp decline in the performance of coal companies has long been a clear card.
At the end of March, Lazy Cat wrote an article that the performance of coal companies is closely related to coal prices, rising and falling at the same time.
https://mp.weixin.qq.com/s/IR_pX_z_1rucVzbOT-_6yw
In the past few years, the reason why the coal market has flourished is that the performance has continued to rise, and further digging down, behind the rise in coal prices.
At the end of 2022, coal prices peaked, and the average price of thermal coal in 2023 was 971 yuan/ton, down 324 yuan/ton from 2022, and the percentage was "down 25%", which was comparable to the decline in the performance of coal enterprises.
In other words, the market has long expected a sharp decline in the performance and dividends of coal companies. At this time, it is more or less inappropriate to use the performance of 2023 to talk about things.
03
So why did coal fall?
Let's get back to what to expect.
There are two types of coal, one is thermal coal, which is mainly used for power generation.
The other is coking coal, coking coal is coking to obtain coke, which is mainly used for steelmaking.
1) In terms of thermal coal,
There is no shortage of coal in downstream power plants, and inventories of the six major power generation groups have also been slowly rising recently in preparation for the upcoming summer peak in electricity consumption.
At the same time, there is a big change in the electricity market this year.
In order to absorb photovoltaic power generation, many provinces and cities have issued a draft for comments, setting noon as a "trough section" to encourage enterprises to use electricity at noon, which is bound to reduce the demand for thermal power.
And in terms of supply,
Although domestic coal production fell in the first quarter, supply is recovering rapidly. The amount of imported coal is also much higher than in previous years, with 13.22 million tons of thermal coal imported in March, up 57% year-on-year and 29% month-on-month.
So if you look at the price,
Recently, the price of thermal coal has seen another wave of decline, from 940 yuan/ton to 812 yuan/ton, a decline of 13.6%.
2) Coking coal
The situation with coking coal is better,
The inventory of downstream steel mills is rapidly depleting, and enterprises have the urge to replenish inventory.
Reflected in the price, the recent price trend of coking coal and coke is significantly stronger than that of thermal coal.
Some time ago, Li Bei was also optimistic about coking coal and recommended several coking coal stocks by the way.
Unfortunately, this difference is not evident in the stock market.
In the rally before April 18, coking coal stocks performed better, but in the subsequent pullback, coking coal stocks also fell more.
Offset by the two deductions, coking coal stocks and thermal coal stocks have actually performed similarly in the past month.
The above is the change in coal supply and demand,
In a nutshell:
The downward pressure on thermal coal prices is greater, and coking coal is better.
This expectation has been reflected in commodity prices, but not in equities.
04
Then let's talk about another logic of coal stock investment - safe-haven demand.
Huang Hai said very clearly in a quarterly report:
"In the macro environment at home and abroad this year, coal stocks with low debt and high cash flow still have high safety and scarcity."
What does that mean?
Coal companies are just declining in performance, and they are not unprofitable, and the cash flow is still strong.
Therefore, in the rebound at the beginning of the year, after using the growth stock Xiaobo, Huanghai quickly allocated his position to coal.
Mapping to the market,
The coal bull market of the past few years can be divided into several waves:
1) Before September 2022, the rise in coal prices led to an increase in the coal market;
2) From September 2022 to June 2023, the coal market fell due to the decline in coal prices;
3) After November 2023, coal prices fell, and the broader market also fell, but CSI Coal rose against the trend, and the driving force of the market became the "hedging demand" of funds.
Starting from this logic, it can also explain why coking coal stocks are not sensitive to changes in coking coal prices, and "performance growth expectations" have long been replaced by "hedging demand", which has become the main logic that dominates the rise and fall of coal stocks.
Under the logic of "hedging demand", it does not matter whether you are thermal coal or coking coal, what matters is that the company has low debt and high cash flow.
05
To sum up,
Coal is dominated by two logics, one is the rise and fall of commodity prices, and the corresponding performance expectations.
The other is the demand for safe haven, which corresponds to safety, good corporate fundamentals, low debt, and high cash flow.
For the time being, I'm afraid that "hedging demand" has the upper hand.
But the danger cannot always exist, and once the demand for safe haven disappears, then the money that is currently long coal because of risk aversion may sell coal because there are better options.
This is a risk point.
The other is the price,
How will coal prices go?
There is also a great deal of uncertainty.
Draw a line to the average price from 2017 to 2019, and the current price is also a little away from that line.
Dividends are the easiest to figure out.
Based on last year's dividends, CSI Coal's dividend yield is 7.1%.
Assuming that the dividend rate does not change much this year, the dividend will be 24% less based on the average decline of 24% in the performance of coal companies.
7.1% * （1-24%） = 5.4%
Keeping the current share price unchanged, by the middle of the year, CSI Coal's dividend yield will fall to 5.4%, which is comparable to the average of the past five years.
Last time we calculated,
Final thinking, based on the average coal price of 700 yuan/ton, the performance is discounted by 6, and the dividend yield of the coal index is 4.36%.
Other words
Buy a coal fund, hold it for a long time, and without any moths, you can earn an average dividend yield of about 5% per year.
The trade-off is the disappearance of safe-haven demand and the decline in stock prices that could result from a further fall in coal prices.
This is actually quite similar to the logic of buying long-term treasury bonds at the moment, there is no better choice, but even if the logic suddenly reverses one day, it will be caught off guard~~
Of course, coal ETFs are much more volatile than Treasury ETFs...
Disclaimer: The content of this article is for informational purposes only and does not constitute investment advice