Ge Long Hui·2025-05-19 01:25Core Viewpoint - The coal prices have significantly increased since the beginning of the year, and the National Development and Reform Commission (NDRC) has intervened to stabilize supply and prices, indicating that coal prices will operate at the upper limit of a reasonable range. The focus for coal stock investments should shift towards high dividends and transformation opportunities throughout the year [1]. Investment Highlights - Since the beginning of the year, coal prices have continued to rise, supported by fundamentals. The spot price of Qinhuangdao (Q5500) coal increased from 790 RMB/ton at the beginning of January to 1070 RMB/ton by the end of January. The rise is attributed to the rapid decline in port coal prices and the inversion of pit coal prices, leading to decreased enthusiasm among traders to pull coal to ports and low port inventories. The sentiment was further catalyzed by Indonesia's announcement to restrict coal exports. Demand has exceeded expectations due to strong electricity consumption and power plant restocking, with economic growth policies expected to further strengthen demand, providing effective support for coal prices [2]. - The NDRC has taken measures to consolidate supply and price stability, indicating that coal prices will operate at the upper limit of a reasonable range. A meeting held on February 9 emphasized that coal companies should resume normal production and supply, strictly implement supply and price stabilization policies, and regulate pricing behavior. It is believed that the rise in coal prices may pause, but there is no risk of a rapid short-term decline due to factors such as increased demand for coal and electricity from a cold spring and economic growth, as well as the increase in Indonesia's benchmark coal price to 188.4 USD/ton, which translates to a domestic cost of over 1237 RMB/ton, exceeding domestic coal prices, limiting the increase in imported coal supply [2]. Investment Strategy - In 2022, investments in coal stocks should not overly focus on coal prices but rather seek alpha opportunities, as high dividends and transformation present greater potential for increases. Following the volatility in the coal market in 2021, the government has sufficient means to maintain price stability. The significant rise in prices leading to high earnings elasticity is unlikely to occur in 2022. However, the government shows tolerance for relatively high coal prices, which are expected to fluctuate at high levels. The long-term contract prices have significantly increased year-on-year, leading to an elevation in corporate profit levels. Value discovery will be the main theme for coal stock investments in 2022. The long-term contract price for Qinhuangdao Q5500 coal in February 2022 was 725 RMB/ton, and under the new mechanism, high long-term contract prices are expected to be maintained, leading to sustainable optimization in capital expenditure, cash flow, finance, profit, and dividends. New dividend plans are anticipated following the disclosure of annual reports by coal companies in March 2022. Additionally, the government encourages the construction of photovoltaic projects to address mining subsidence, suggesting that some coal companies may leverage local resources to acquire green energy projects, accelerating transformation [3]. Investment Recommendations - The coal sector is currently at a projected bottom, with valuations significantly low. With the increase in benchmark long-term contract prices for thermal coal and expected high prices for coking coal, high-quality resource companies possess long-term value, while transformation companies have growth potential. The sector is set to see valuation increases. The main investment themes for the year include high dividends, green energy transformation, and growth-oriented coal chemical projects. Recommended companies include China Shenhua, Jingyuan Coal Electricity, Energy Investment, Yanzhou Coal, China Xuyang Group, and Baofeng Energy. Additionally, high-quality resource companies recommended are Shaanxi Coal and Chemical Industry, Huaibei Mining, China Coal Energy, Shanxi Coking Coal, Lu'an Environmental Energy, Lanhua Sci-Tech, Panjiang Coal and Electricity, and Pingdingshan Coal [4].