Shanxi Coal International (600546) Annual Report 2018 Comments: High Financial Expenses and Profit Improvement Still Waiting

The company’s coal sector has strong profitability, contributing about 1.8 billion net profit to mothers in 2018.

However, the impairment provision, high financial costs and other factors continue to drag down performance. In the short term, it is expected that these factors will have limited improvement, and the company’s performance will still be difficult to achieve sustained and rapid growth.

We therefore downgraded the company to “overweight” rating. After the historical burden of the trading sector is gradually digested, the company’s market value is expected to usher in a systematic revaluation.

Impairment in 2018 led to the company’s net profit level, but net profit after deductions increased significantly.

The company’s operating income / net profit in 2018 were 381 respectively.


200 million (six years-6.

79% /-46.

97%), EPS is about 0.

11 yuan, after deducting non-return to the net profit of the mother 5.

07 million US dollars, non-recurring losses mainly from non-operating expenses due to expected compensation, about 4.

10,000 yuan.

The company’s gradually distributable profits are still negative, so no dividend distribution will be made in 2018, and no dividends have been paid for three consecutive years.

Coal production exceeded 3,400 tons, and the net profit of the coal sector may reach 1.8 billion US dollars.

The company’s headquarters produces a total of 3,440 raw coal.

70 inches (at least +29.

98%), mainly because the company ‘s main mines increased their production capacity through nuclear production.

The average price per ton of coal based on production was 315.

22 yuan (year-19).

59%), mainly due to the lowest calorific value of coal in the Hequ Open-pit Mine. Sales volume increased and the average selling price was reduced. As a result, the cost per ton of coal was reduced to 106.

14 yuan (for the whole year -28.


The gross profit margin of coal mining reached 66.

33%, an increase of 4 per year.


We estimate that the company’s coal mining sector’s net profit attributable to its parent in 2018 will be approximately $ 1.8 billion.

Initial trade volume is approximately 7788 initially (+6 per year.

37%), the average price of trade coal and the cost per ton of coal continue to decline, and the decline in gross profit margin has remained flat.

Historical burdens are still being digested and financial costs remain high.

Although the company’s 2018 asset impairment loss accrued instead of 5.

6.4 billion (previously down 71.

22%), but the historical burden of trade in the past has not been digested, and financial costs are still as high as 14.

200 million, whether systematic decline in the future will be the key to the company’s profit improvement.

In addition, the company has multiple pending lawsuits or arbitrations, which may add uncertainty to profitability in the future.

Risk factors: The decline in coal demand affects coal prices and performance; the company’s potential litigation results are unfavorable.

Investment suggestion: Considering that it is difficult for the company’s financial costs to decrease rapidly in the short term, we lower the company’s EPS forecast for 2019/2020 to 0.


31 yuan (previous forecast was 0.48/0.

42 yuan), given EPS forecast of 2021 0.

33 yuan, the current price of 4.

69 yuan, corresponding PE is 18/15 / 14x, given 2019 P / B1.

2 times, target price 5.

42 yuan, downgraded to “overweight” level.