Founder: The import advantage of coal is weakening, but the defensive nature of coal remains strong.

Founder issued a research report stating that the current spot coal price has fallen below the long-term contract benchmark price, and attention should be paid to the support role of the long-term contract price for the spot price in the future. Previously, the bank believed that the current coal price had some support near the current price, and the formula-based long-term contract price was less affected, with a higher proportion of long-term contracts providing stronger performance stability. The inflow of new capital is expected to make dividends a major investment theme in 2025. In addition, the coal-electricity joint operation model that can improve operational duration, recover profits, and enhance operational risk resistance is expected to become a market focus in 2025. Founder's main points are as follows: Industry perspective This week, coal prices fell again, reaching 655 yuan before stabilizing. Prices once fell below the long-term contract baseline of 675 yuan. Due to the downward trend in coal prices over the past two months, some coal mines in certain regions have started maintenance, leading to a slight decrease in local supply. Additionally, as coal prices approach the cost line for Xinjiang coal exports, the enthusiasm for Xinjiang coal exports has declined. Furthermore, with the Indonesian rainy season and Ramadan approaching, international shipping costs have risen, leading to increased costs for Indonesian low-calorific coal, thereby reducing coal supply. Port inventories in the northern ports have started to decline. Demand is still weak as downstream buyers expect coal prices to continue to fall, resulting in accumulation of coal inventories at ports. The spot price has fallen below the long-term contract benchmark price, and attention should be paid to the support role of the long-term contract price for the spot price in the future. Due to the uncertainty of hydropower sustainability and the possibility that imported coal has reached its limit, in January-February 2025, China's imports of thermal coal increased by 1.14% year-on-year, with a small increase. It is expected that there will be no significant change in coal supply in the near future. With the improvement of the macroeconomic situation, electricity demand is expected to increase, and the supply-demand balance is expected to change. If the real estate stabilizes in 2025, and fiscal expenditure increases, the demand for energy in real estate construction and manufacturing may increase, which will support coal prices. Investment perspective The current coal supply and demand situation is relatively loose mainly due to the inadequate operating rates of industries with high demand for coal. The supply growth of coal is expected to decline, as current coal prices are approaching the cost lines of some high-cost coal mines and the cost line of Xinjiang coal exports. The decline in coal prices will weaken this part of the supply. Previously, the bank believed that the current coal price had some support near the current price, and the formula-based long-term contract price was less affected, with strong performance stability for Shenhua, Shaanxi Coal, and China Coal, which have a higher proportion of long-term contracts. The previous rapid decline in the coal sector, with some coal companies' valuations returning to low levels, has led to renewed attention to the coal sector as coal prices stabilize and rise. Coal companies still have high dividend incentives, with Shenhua announcing a dividend ratio of 76.5%. If coal prices stabilize at the current level, Shenhua, Shaanxi Coal, and other high-dividend companies may still offer high dividend yields, further demonstrating the investment value of the coal sector. In a low-interest rate environment, high dividend stocks remain noteworthy, especially for long-term capital, with high dividends being their main investment choice, particularly for insurance funds, social security funds, and the like. The inflow of new capital is expected to make dividends a major investment theme in 2025. In addition, the coal-electricity joint operation model, which can improve operational duration, recover profits, and enhance operational risk resistance, is expected to become a market focus in 2025. Investment logic 1 In the current environment where supply and demand, price levels, and industry profits are expected to stabilize and improve, the advantages of high dividend stocks in the industry are becoming increasingly significant. It is recommended to focus on assets with excellent resource endowments, stable operating performance, and high expected dividend ratios: China Shenhua Energy, Shaanxi Coal Industry, China Coal Energy. Investment logic 2 The coal-electricity joint operation model can effectively resist cyclical fluctuations and benefit from the price difference between market coal and long-term contract coal. Joint operations can recover profits from long-term contract concessions and increase profitability. Additionally, in the context of the "Dual Carbon" policy, coal-electricity joint operation companies can improve their operational duration and increase their valuation. It is recommended to focus on coal-electricity joint operation assets: China Coal Xinji Energy, Shaanxi Coal Industry, China Shenhua Energy, Shaanxi Energy Investment.