FIRST SHANGHAI maintains a "buy" rating on China Shenhua Energy (01088) with a target price of 47.7 Hong Kong dollars.

FIRST SHANGHAI released a research report stating that it maintains a "buy" rating for China Shenhua Energy (01088), with a projected net profit attributable to shareholders of 588/587/589 billion yuan for the years 2025-2027, and a target price of 47.7 Hong Kong dollars. The company's performance in the third quarter significantly outperformed the industry average, highlighting its leading position and competitive advantage. Once the group's asset injection is completed, it will significantly increase the company's business scale, further strengthen its "coal-electricity integration" model, enhance overall synergies and risk resistance, and open up new channels for long-term valuation enhancement. The company has always been seen by the market as a "cash cow," and its continuous and generous dividend policy is highly favored by value investors. Under a high dividend strategy, investors can receive stable cash returns even during stock price fluctuations, providing a solid safety margin and defensive value for its stock price. The main points of FIRST SHANGHAI are as follows: Overall performance meets expectations, with positive signals of improvement in the quarter-on-quarter comparison Affected by the overall oversupply in the coal industry, the company's performance in the first three quarters was under pressure. In the first three quarters of 2025, revenue was 213.151 billion yuan, a year-on-year decrease of 16.6%; net profit attributable to shareholders was 41.366 billion yuan, a year-on-year decrease of 13.8%. In the third quarter, revenue reached 75.042 billion yuan, a year-on-year decrease of 13.1%, net profit attributable to shareholders was 14.66 billion yuan, a decrease of 11.8% year-on-year. The quarter-on-quarter improvement indicates that the company's profitability may have bottomed out and begun to recover. Both coal quantity and price decline, but cost control demonstrates strength The main reason for the company's decline in performance in the first three quarters was its core coal business. The company's coal sales volume was 316.5 million tons, a year-on-year decrease of 8.4%. In the third quarter, the output of commercial coal was 86 million tons, with sales of 112 million tons, indicating a certain level of destocking or external coal trading activities. "Declining quantity and price" is the main challenge facing the coal sector. The domestic coal market in 2025 faced dual pressure of slowing demand and price rollback, directly leading to a decrease in the company's coal sales revenue. However, with outstanding cost control capabilities, the company's cost of self-produced coal per unit production in the first three quarters was 164.4, a year-on-year decrease of 3.1%, and continuous optimization quarter-on-quarter. This fully demonstrates the company's fine management level and internal efficiency in production and operation, which is a key source of profitability resilience. Power and other non-coal sectors grow against the trend, with significant integration synergies While facing challenges in its core coal business, the company's non-coal businesses such as electricity, railways, and ports have shown a strong "ballast" effect. In terms of the electricity business, benefiting from the downward trend in coal prices leading to a 7.8% year-on-year decrease in fuel costs, the profitability of the electricity sector has improved significantly, with a gross profit margin rising by 3.2 percentage points year-on-year in the first three quarters. This perfectly illustrates the internal hedging mechanism of the integration model - while the decline in coal prices affects coal sales profits, it can improve the gross profit margin of the power generation business. The profitability of transportation operations (railways, ports) and related coal chemical business also remains robust or has improved, contributing stable profits and cash flow to the company.