Guoyuan International has released a research report, stating that SHOUGANG RES (00639) maintains ample cash reserves and a longstanding commitment to high dividend payouts (97% in 2025). The firm has updated its target price for the company to HK$3.18 per share, corresponding to a 2026 P/E of 16.5x and a 2027 P/E of 15x. This target price implies a potential upside of 22% from the current price, warranting a "Buy" rating. Guoyuan International's key points are as follows:

**Cost per Ton of Coal Decreased 13% Year-on-Year in 2025, Signifying Effective Refined Management** In 2025, the unit production cost of raw coking coal was RMB 373 per ton, a 13% decrease year-on-year. This breakdown includes: controllable cash production costs (excluding ad valorem taxes like resource tax, depreciation, and amortization) at RMB 229 per ton, down 9% year-on-year; ad valorem taxes such as resource tax decreased significantly alongside the decline in coal prices. The cost reduction primarily benefited from: (i) economies of scale from a 6% increase in raw coal output; (ii) a reduction in ad valorem taxes like resource tax of approximately RMB 30 per ton due to lower coal prices; (iii) the effectiveness of material consumption control measures; (iv) a corresponding decrease in performance-linked wages following profit declines, with the period expense ratio maintained around 6%. For 2026, the company aims to further reduce costs by 3.5% to 10% through measures including increased workforce reductions, transparent material procurement bidding, and improved washing recovery rates.

**Coking Coal Supply-Demand Dynamics Expected to Marginally Improve in 2026; Recent Third Round of Coke Price Hikes Supports Price Expectations** The supply-demand balance in the coking coal market is anticipated to see marginal improvement in 2026. On the supply side, domestic policies against overcapacity coupled with stricter safety production controls mean some capacity increases from the 2021-2022 supply guarantee period may face withdrawal due to lack of capacity replacement quotas, suggesting stable or even declining domestic coking coal supply. On the demand side, ongoing Middle East tensions continue to disrupt global energy supply, driving up thermal coal prices which indirectly support coking coal prices. Following two rounds of coke price hikes in Q1 2026, steel mill profitability still increased, maintaining positive operational momentum. The recent implementation of a third round of coke price hikes further supports expectations for stable to firm coking coal prices.

**Company's Three Mines Achieve Full, Stable Production; Positive Q1 2026 Operational Data** In 2025, raw coking coal output reached 5.25 million tons, a 6% year-on-year increase, primarily benefiting from the Xingwu Mine returning to full capacity after completing the conversion between upper and lower coal seams. Refined coking coal production was 3.15 million tons, with sales of refined coking coal at 3.13 million tons. For the first quarter of 2026, the company produced 1.38 million tons of raw coking coal (up 22% year-on-year) and 0.96 million tons of refined coking coal (up 39% year-on-year). Sales of self-produced refined coking coal were 0.98 million tons (up 17% year-on-year). Although the selling price saw a slight year-on-year decrease of 3% to RMB 1,170 per ton due to coal quality factors, it has recovered compared to the 2025 comprehensive average selling price of RMB 1,066. Benefiting from the bottoming out and recovery of coking coal prices combined with the company's refined cost control, an improvement in full-year profitability is anticipated.

**Risk Warnings** 1. Macroeconomic downturn leading to weaker-than-expected domestic coking coal demand. 2. Risks associated with safety inspections and production restriction policies potentially causing output declines. 3. Significant decline in international coking coal prices. 4. Approval delays for the Guojiaogou Mine of Lianshan Coal Chemical beyond expectations. 5. Dividend payments falling short of expectations.