What's new
　　The share price of Shougang Fushan Resources has fluctuated recently due to factors such as a key shareholder's stake reduction, ex-dividend and falling coal prices. Given the limited downside in coking coal prices, we are optimistic that the firm will continue to provide high and stable dividend returns.
　　Comments
　　According to the HKEX, the key shareholder, Funde Sino Life, sold 15.76mn shares on May 19, 10mn on May 31 and 10mn on June 7, reducing its stake to 28.93%.
　　The firm's final dividend for 2022 is HK$0.28/sh and the ex-dividend date is June 9, 2023. The previous day’s closing price minus the dividend is HK$2.24 (vs. HK$2.52 before).
　　The firm's output should remain relatively stable. Over the past three years, the firm’s annual output has mostly averaged about 5mnt. According to its 2022 annual report, its Xingwu Coal Mine will shift from upper to lower coal seams. We think its output may be disrupted to some extent but could recover to a relatively stable level following the transition.
　　Clear cost advantage. In 2022, the firm's coking coal washing rate was 61.5%, higher than the level in Shanxi and the national average. The high washing rate also indicates the firm's cost advantage in producing and selling clean coal over other major coking coal companies.
　　Ample cash supports dividend payout. Net operating cash inflow in 2022 was about HK$3.8bn, largely flat with the previous year. We estimate the firm held about HK$6.4bn of cash (on a net basis) as of 2022. Given the firm's relatively limited capex, we expect it to maintain ample cash. Over the past five years, the firm's average dividend payout ratio reached 80%, remaining high and stable.
　　Dividend yield ratio attractive. We calculate the firm's dividend yield under different coal selling price assumptions based on an 80% dividend payout ratio and the June 16 closing price. Despite the sharp correction in coking coal prices, we believe the current share price implies a 2023 dividend yield of more than 10%.
　　Coking coal prices may have limited downside. We think the recovery of coking coal demand may be moderate, given the marginal weakening of demand stimulus from infrastructure construction and the slow recovery of demand from the real estate sector. On the supply side, domestic output is still inelastic and coking coal imports may also slow along with falling prices. Overall, we think coking coal prices may have limited downside.
　　Financials and valuation
　　Given falling coking coal prices, we cut our earnings forecast for 2023 by 25% to HK$1.72bn and for 2024 by 25% to HK$1.64bn. The stock is trading at 6.0x 2023e and 6.2x 2024e P/E. We maintain OUTPERFORM and cut our ex-dividend TP by 16.4% to HK$2.40 (7.1x 2023e and 7.4x 2024e P/E), offering 18% upside.
　　Risks
　　Disappointing recovery of downstream demand; larger-than-expected increase in industry supply; major shareholder’s unexpected share reduction.