The Zhitong Finance App learned that Debon Securities released a research report saying that according to Wind data, the coal industry allocation ratio continued to rise in the fourth quarter of 2023. After excluding Hong Kong stocks, the share of coal stocks in heavy public fund holdings was 1.21%, up 0.3 pct from month to month, but it was still 0.75 pct lower. The bank expects the third quarter of 2023 to be the low annual performance. In 2024, industry profits will continue to grow year on year, low and high. Controlling shareholders of a number of high-quality coal companies have successively announced plans to increase their share holdings, showing confidence. High dividends in the coal sector are attractive under low capital expenditure, and with the continuous promotion of the Chinese characteristic valuation system, corporate value has received further attention from shareholders, maintaining the “superior over market” rating.
Debon Securities's views are as follows:
In the fourth quarter of 2023, the excess earnings in the coal sector were obvious.
In Q4 2023, the coal industry had excellent market performance, outperforming the Shanghai Composite Index by a large margin, and having both excess and absolute returns. In the fourth quarter of 2023, the coal sector rose 4.18%, the Shanghai Composite Index fell 4.36%, and the coal sector surpassed 8.54 pcts. Judging from the performance of the sub-industry, coking coal > thermal coal > coke had increases and decreases of 7.89%, 3.51%, and -3.55%, respectively.
The coal sector holds 1.36% of the position, and the allocation is still low.
According to Wind data, the coal industry's allocation ratio continued to rise in the fourth quarter of 2023. Looking at the market value of positions, the total market value of coal stocks held in the fourth quarter was 37.297 billion yuan, accounting for 1.36% of the market value of mainland public fund holdings, an increase of 0.31 pct over the third quarter. Using the share of the market value in circulation in the industry as the reference basis for the standard fund allocation ratio, as of the end of the fourth quarter of 2023, the market value of A-shares in circulation was 68 trillion yuan, and the market value of the coal industry in circulation was 1.33 trillion yuan, accounting for 1.95%. After excluding Hong Kong stocks, coal stocks accounted for 1.21% of the market value of heavy public fund holdings, up 0.3 pct from month to month, but still under 0.75 pct.
Over 60% of coal stocks were increased, and the Shaanxi coal industry saw a significant increase in its holdings.
Judging from changes in total shareholding, Yongtai Energy, Shaanxi Coal, Yankuang Energy HK, Hengyuan Coal & Electricity, and Huayang shares ranked in the top five, increasing their holdings by 1.39, 1.35, 0.80, 0.71, and 0.39 billion shares respectively. Judging from the changes in the market value of shares held in the market value of the fund's stock investment, Shaanxi Coal Industry, China Shenhua, Hengyuan Coal and Electricity, Lu'an Huanneng, and Huayang shares ranked in the top five, with 0.17%, 0.12%, 0.02%, 0.04%, and 0.02% respectively. They increased 0.067 pct, 0.023 pct, 0.014 pct, 0.012 pct, and 0.0081 pct from the third quarter, respectively.
Long-term holding of coal stocks has yielded remarkable returns, and high dividends support further increases in allocation.
Long-term holding income mainly includes capital gains and dividend income. It is calculated by measuring the stock price earnings and dividend income of each sample company from listing until 2022. The average compound income of the companies in the sample was 8.3%. If dividend earnings are reinvested, the average compound reinvested return is 8.7%. The bank counted the net cash/net assets of various listed companies as of the third quarter of 2023. Among them, Lu'an Huaneng, Jingong Coal and Hengyuan Coal and Electricity were 54.0%, 48.4%, and 43.9% respectively. There is potential for further increase in future dividends. As of January 23, 2024, the average dividend rate for coal stocks in the sample was as high as 6.8%.
Investment advice: With the Politburo meeting held on July 24, 2023, and the two offices issued “Opinions on Further Strengthening Mine Production Safety” on September 6, the fundamentals and expectations of the coal industry have changed significantly. The third quarter of 2023 is expected to be a low annual performance point, and industry profits will continue to grow year on year in 2024, low to high. Controlling shareholders of a number of high-quality coal companies have successively announced plans to increase their holdings, showing their confidence. High dividends in the coal sector under low capital expenditure are attractive, and with the continuous promotion of a characteristic Chinese valuation system, corporate value has received further attention from shareholders. Maintain the sector's “better than market” rating.
Three directions are recommended:
1) Bifocal elasticity. In anticipation of recovery, there is room for Bifocal to rebound after experiencing a sharp drop in prices in the early period. Recommendations: Lu'an Huanneng (601699.SH), Pingmei Co., Ltd. (601666.SH), Huaibei Mining (600985.SH), China Xuyang Group (01907), etc.;
2) Premium dividends. High-quality companies have long-term dividend capacity, and as capital expenditure declines, there is room for continuous improvement in dividend rates. Recommended: Shaanxi Coal (601225.SH), Shanmei International (600546.SH), China Coal Energy (601898.SH), etc.;
3) Long-term increments. Companies that have released production capacity will have more explosive suggestions and concerns when the next cycle starts: Guanghui Energy (600256.SH), Huayang Co., Ltd. (600348.SH), Haohua Energy (601101.SH), etc.
Risk warning: Overseas economic recession exceeds expectations; domestic economic recovery falls short of expectations; risk of major coal safety accidents.