The Zhitong Finance App learned that Northeast Securities released a research report saying that currently the PE valuation of most coal stocks is 5-8 times lower, and the dividend rate for some high-quality coal stocks has reached 60%-70%. It is expected that PE for coal stocks will rise 10 times. Coking coal is not affected by price limits, resources are more scarce, and profit flexibility is better during periods of rising coal prices. Key recommendations: Pingmei Co., Ltd. (601666.SH), Lu'an Huanneng (601699.SH), Shenhuo Co., Ltd. (000933.SZ).

▍ The main views of Northeast Securities are as follows:

Coal prices fell slightly in 2023, and the coal sector had the highest increase.

Thermal coal stocks increased by 42.3 million tons in '23, coking coal and jet coal stocks fell by 1.49 million tons, overall coal stocks increased slightly, and supply and demand were relaxed. The utilization rate of coal production capacity remains high. The average annual price of different types of coal in '23 dropped by about 20% compared to '22. The coal sector rose 18% in '23, ranking sixth among all sectors. Among them, coking coal companies performed well.

The 2024 cycle bottomed out and rebounded, and we are looking forward to a new boom cycle.

Coal prices and PPI bottomed out and rebounded in June '23; 10-year treasury bond yields reached a record low, and the medium-term economy and coal prices are likely to recover upward; China and the US are at the bottom of the inventory cycle, and are expected to resonate upward in 2024. The Central Economic Work Conference mentioned that some industries have overcapacity problems, and it is expected that 2024 will increase the elimination of excess capacity. At the same time, real estate, “three major projects”, and trillion-dollar special treasury bonds are expected to become new highlights on the demand side. Referring to the 2015-2018 and 2020-2022 upward cycles, Bohai Rim thermal coal increased by 246 yuan/ton and 698 yuan/ton respectively. The main coking coal in Jingtang Port increased by 1003 yuan/ton and 1,345 yuan/ton respectively.

The rapid economic development of India and Southeast Asia is expected to drive an increase in overseas coal demand.

The Indian and Southeast Asian economies are in a period of rapid development, and the process of industrialization and urbanization is accelerating, which is expected to boost overseas demand for steel and coal. India's energy consumption is growing rapidly, and the global share continues to rise, accounting for 12.6% in 2021, an increase of 4.6 pcts over 2010. India accounts for a high share of primary energy consumption, 56.7% in '21, and coal import demand is high. The per capita steel consumption in countries such as India and Southeast Asia is lower than the world average, and there is great potential for future growth. Countries such as India and Southeast Asia rely on imports for coking coal, which will have an impact on the global coking coal market.

With a gap of 1-150 million tons between supply and demand, coal prices are expected to strengthen in 2024.

On the supply side, the overall amount of global investment in coal is on a downward trend, and supply is greatly limited. The re-imposition of coal tariffs is expected to curb the amount of imported coal. At the same time, domestic safety regulations are becoming more strict. Combined with the low production capacity of new coal mines in 20-21, domestic supply growth will be limited in the next 2 years. Domestic coal production is expected to increase by about 100 million tons in '24; global coking coal supply may drop by 18 million tons compared to '22, or 1.6%.

On the demand side, the electricity consumption growth rate of the entire Chinese society has remained high. Investment in thermal power has grown rapidly in the past three years. The growth rate of thermal power generation is expected to reach 5%-6% in 24. Real estate, manufacturing, and infrastructure investment is expected to improve marginally under policy impetus. The growth rate of pig iron production is expected to reach 3% to 4%. The growth rate of coal demand is expected to be 4%-5%, an increase of 2-250 million tons. There was a gap of 1-150 million tons in domestic coal supply and demand in '24, and coal prices are expected to strengthen.

Risk warning:

Macroeconomic recovery fell short of expectations, production safety risks, and coal imports were stronger than expected.