FIRST SHANGHAI has reiterated its "Buy" rating on CHINA SHENHUA (01088), setting a target price of HK$47.7. The firm projects net profits attributable to shareholders of RMB58.8 billion, RMB58.7 billion, and RMB58.9 billion for 2025-2027, respectively.
CHINA SHENHUA's Q3 performance significantly outperformed industry averages, highlighting its leading position and competitive edge. The potential completion of group asset injections is expected to substantially expand its business scale, further strengthening its "coal-power integration" model and enhancing overall synergies and risk resilience. This development could pave the way for long-term valuation upside.
The company has long been regarded as a "cash cow" in the market, with its consistent and generous dividend policy attracting value investors. Under its high-dividend strategy, investors can expect stable cash returns even during stock price fluctuations, providing solid downside protection and defensive value.
Key points from FIRST SHANGHAI's analysis:
1. **Performance Meets Expectations with Sequential Improvement** Despite pressure from oversupply in the coal sector, CHINA SHENHUA reported Q1-Q3 revenue of RMB213.151 billion (down 16.6% YoY) and net profit of RMB41.366 billion (down 13.8% YoY). Q3 standalone revenue reached RMB75.042 billion (down 13.1% YoY), with net profit at RMB14.66 billion (down 11.8% YoY but showing sequential improvement), suggesting a potential bottoming-out and recovery in profitability.
2. **Coal Segment Faces Volume-Price Decline but Demonstrates Cost Control** The coal business remained the primary drag, with sales volume dropping 8.4% YoY to 316.5 million tons. Q3 production stood at 86 million tons with sales of 112 million tons, indicating inventory reduction or external coal trading activities. While domestic coal markets faced dual pressures of slowing demand and price corrections in 2025, the company maintained strong cost discipline - unit production costs for self-produced coal fell 3.1% YoY to RMB164.4/t, demonstrating operational efficiency.
3. **Non-Coal Segments Show Resilient Growth with Synergy Benefits** The power generation, railway, port, and coal chemical businesses served as stabilizing forces. The power segment notably benefited from a 7.8% YoY decline in fuel costs due to lower coal prices, improving gross margin by 3.2 percentage points. This exemplifies the internal hedging mechanism of the integrated model, where coal price declines boost power generation profitability. Transportation and coal chemical businesses also contributed stable profits and cash flow.
The report underscores CHINA SHENHUA's ability to navigate industry challenges through its diversified operations and integrated business model while maintaining attractive shareholder returns.