doublesupertimespoker| Coal industry: The upward turning point in the production capacity cycle has emerged, and expectations for stock price repair have increased

Newsletter summary

The coal industry valuation repair can be expected, the capacity cycle upwards inflection point appears, the next 1-2 years has a high performance-to-price ratio, the valuation has a larger room for rise. The central rise in coal prices and the central rise in the ROE of the coal sector will push up share prices. Risk factors include declining macroeconomic and real estate markets, falling coal prices and energy policy adjustments.

Text of news flash

[the coal industry has entered a new business cycle, the stock price is expected to be repaired, and there is plenty of room for valuation to rise] since 2012, the cumulative net worth of the coal industry index has long been below the cumulative net worth of ROE, reflecting the long-term pessimistic expectation of the market for its growth. The mood stems from the overcapacity and downturn experienced by the coal industry over the past decade. From 2005 to 2012, the trend of deviation degree of coal industry can be divided into three stages.DoublesupertimespokerShare prices are depressed as a result of the early upswing, share price gains driven by mid-and late-stage valuations, and overcapacity from 2012 to the present. However, with the upward turn of the capacity cycle, the market expects that the long-term deviation of the coal industry stock price from ROE will be corrected, and the correction may be faster and longer than expected. At present, the coal industry is considered to have a high performance-to-price ratio in the next 1-2 years, and there is significant room for valuation improvement. Compared with other cyclical sectors, the PB valuation of the coal industry is in the middle level, and the PE valuation is the lowest among the cyclical sectors. Considering the certainty of the long-term industrial logic of the coal industry, the market's recognition of the concepts of "coal price central rise" and "ROE central rise" is gradually increasing, and the repair expectation of the stock price of the coal industry is rising. It is worth noting that although the coal ROE has shown a downward trend since 2023, the mitigation of the mismatch between supply and demand and the support of high dividend logic have led to an increase in coal PB. Continued improvement on the supply and demand side, coupled with the limited impact of the Fed's interest rate hike on energy prices, is expected to keep coal prices high. If the Fed enters an interest rate cut cycle in the second half of 2024, the rise in energy prices will be even more pronounced. In addition, the prospect of an improvement in annual earnings in the coal industry is expected to help absorb the increase in valuations. The improvement of supply and demand pattern and the enhancement of profitability will help the share price of the coal industry to gain further support. However, factors such as the macroeconomic downturn, the decline in the real estate market, the sharp decline in coal prices and major adjustments in domestic energy industry policies may bring risks to the coal industry. On the whole, the coal industry is showing signs of recovery in the new industrial cycle, providing attractive investment opportunities for investors. With the market re-evaluation of the prospects of the coal industry, the repair and valuation of coal stock prices will become the focus of the market in the future.