Guoyuan International has issued a research report recommending a "Buy" rating for SHOUGANG RES (00639) with a target price of HK$3.52. The company owns three high-quality coking coal mines—Xingwu, Jinjiazhuang, and Zhaiyadi—in Liulin County, Shanxi Province. The coal produced is classified as rare "panda coal" due to its scarcity and premium quality.

With coking coal supply-demand expected to balance by 2026 amid stricter safety regulations, prices may stabilize at reasonable levels with upward potential, supporting sustained earnings recovery. The company maintains a robust financial position with zero interest-bearing debt, offering high dividend payouts and long-term investment value. Key highlights include:

**Premium Coking Coal Resources with Superior Quality** SHOUGANG RES operates three active mines in Liulin, each with an approved annual capacity of 1.75 million tons (total 5.25 million tons). All mines are equipped with dedicated washing plants, with a combined annual processing capacity of 6.3 million tons. Located in the Hedong Coalfield's Liliu mining area—a major reserve of high-grade hard coking coal in China—the company's "panda coal" commands premium pricing due to its scarcity. Additionally, progress on the Guojiagou mine's exploration-to-production approval could further extend resource longevity and growth prospects.

**Earnings Recovery Expected as Coking Coal Prices Stabilize by 2026** Current production focuses on No. 8 and No. 9 coal seams, benchmarked against Liulin No. 9 coal prices. H1 2025 average realized selling price for refined coking coal fell 45% YoY to RMB 1,067/ton (tax-incl.), but prices rebounded from a June low of RMB 970/ton to RMB 1,490/ton by mid-November 2025, currently at RMB 1,290/ton. With Q3 price recovery, H2 profitability is projected to improve. By 2026, balanced supply-demand dynamics and tightened safety oversight may trigger periodic shortages, supporting price elasticity and earnings growth.

**Strong Financials and Attractive Dividends Underpin Long-Term Value** The company holds zero interest-bearing debt and boasts ample liquidity, with HK$9.456 billion in cash and equivalents (including fixed deposits over 3 months) as of June 2025. Despite a 40% minimum dividend payout commitment, actual payouts have averaged ~80% in recent years. Notably, the 2024 dividend ratio reached 100% despite profit declines—the highest in the sector. A 6 HK cent interim dividend for 2025 (payout ratio ~76%) and an estimated 5.7% forward yield for 2026 highlight its appeal to income-focused investors.