Preannounced earnings down 38% YoY for A-shares

Yankuang Energy Group preannounced its 1H25 results, estimating that its net profit attributable to shareholders fell about 38% YoY to Rmb4.65bn and recurring attributable net profit declined 39% YoY to Rmb4.4bn under Chinese accounting standards. The decline in earnings was slightly sharper than we expected, which we attribute to falling coal prices and sales volume amid weak demand.

Trends to watch

Easing supply and demand conditions weigh on coking coal prices. Data from the National Bureau of Statistics (NBS) shows that China's raw coal output rose 5.4% YoY in 1H25, with supply maintaining high growth as some companies offset falling prices with rising sales volume. However, demand remained relatively tepid, with thermal power generation by companies above designated size nationwide down 2.4% YoY and crude steel output down 3.0% YoY in 1H25.

Domestic coal prices came under pressure and fell due to easing supply and demand conditions. The average price of Qinhuangdao 5,500kcal thermal coal declined 22% YoY and 19% HoH to Rmb684/t in 1H25.

Coal sales volume declines due to weak demand. Excluding the impact of asset injection and consolidation of Shandong Energy Group Northwest Mining Co., Ltd., the firm's commercial coal output rose 6.5% YoY to 73.60mnt in 1H25, remaining flat HoH. However, the firm’s sales volume fell due to weak demand. Sales volume of commercial coal fell 4.9% YoY to 64.56mnt in 1H25, with that of self-produced coal down 1.8% YoY to 62.60mnt. In 2Q25, sales volume of commercial coal fell 1.7% YoY and rose 5.4% QoQ, with that of self-produced coal falling 1.6% YoY and rising 5.3% QoQ.

Coal price rebounds in 2H25 to support earnings recovery. Since 3Q25, coal prices have rebounded, driven by seasonally rising demand for thermal coal, weaker-than-expected hydropower output, and heightened expectations of supply contraction. The price of Qinhuangdao 5,500kcal thermal coal rose from a low of Rmb615/t at end-June to Rmb694/t as of August 13. The average price of thermal coal since 3Q25 has been Rmb648/t, up 1.5% from the 2Q25 level.

In 2H25, we expect domestic coal supply to contract further, bringing coal supply and demand closer to balance. We expect the rise in thermal coal prices to continue, boding well for earnings improvement compared with 2Q25.

Financials and valuation

We leave our 2025 and 2026 earnings forecasts largely unchanged for A- shares and H-shares. A-shares are trading at 14.3x 2025e and 12.2x 2026e P/E, and H-shares are trading at 9.9x 2025e and 8.1x 2026e P/E. We maintain OUTPERFORM and our TPs of Rmb16.00 (17.3x 2025e and 14.7x 2026e P/E with 20% upside) for A-shares, and HK$10.00 (10.2x 2025e and 8.3x 2026e P/E with 3% upside) for H-shares.

Risks

Sharper-than-expected increase in supply; sharper-than-expected decline in demand.