1H25 results in line with preannouncement and our expectations

Yankuang Energy Group announced its 1H25 results: A-share net profit attributable to shareholders fell 38.5% YoY to Rmb4,652mn, and recurring net profit fell 39.3% YoY to Rmb4,430mn. H-share attributable net profit fell 38.7% YoY to Rmb4.73bn. The firm’s results were in line with preannouncement and our expectations. In 2Q25, A-share net profit attributable to shareholders fell 49.0% YoY and 28.3% QoQ to Rmb1.94bn. We believe the firm's earnings decline was mainly due to falling coal prices.

1) In 1H25, gross profit of coal, chemicals and electric power segments was Rmb12.8bn, Rmb3.06bn and Rmb158mn, changing -36%, +29% and +21% YoY.

2) Increased output and falling sales volume of self-produced coal. In 1H25, commercial coal output rose 6.5% YoY to 73.60mnt. Sales volume of self-produced coal fell 2.2% YoY to 62.34mnt. By region, domestic sales volume of self-produced coal fell 2.5% YoY to 43.05mnt, while sales volume fell 1.6% YoY to 19.29mnt in Australia. In 2Q25, sales volume of self-produced coal fell 2.4% YoY and rose 4.5% QoQ to 31.85mnt.

3) Coal prices fell. In 1H25, ASP of self-produced commercial coal fell 21% YoY to Rmb529/t, with ASPs in China and Australia down 23% and 17% YoY. In 2Q25, ASP of self-produced coal fell 22% YoY and 5.7% QoQ to Rmb514/t, with ASPs in China and Australia down 24% and 18% YoY (down 5.1% and 5.5% QoQ) to Rmb453/t and Rmb655/t.

4) Cost per tonne of coal improved. In 1H25, the firm's A-share cost per tonne of self-produced coal fell 8.7% YoY to Rmb328, with that in China and Australia falling 8.8% and 9.0% YoY. In 2Q25, the cost per tonne of self-produced coal fell 3.7% YoY and rose 6.5% QoQ to Rmb338.

5) Profits of coal chemicals and electric power businesses improved thanks to falling costs. In 1H25, sales volume of major chemicals rose 11% YoY, with ASP and cost down 12% and 19% YoY. The firm's electricity sales volume fell 11%, with ASP up 1.1% and cost down 3.0% YoY.

Trends to watch

The firm actively distributes dividends and repurchases shares,　which we think reflects its emphasis on market value management.

1) The firm plans to pay an interim dividend (excluding tax) of Rmb0.18/sh for 1H25, equivalent to 39% of A-share 1H25 EPS (HK$0.197/sh, equivalent to 40% of H-share 1H25 EPS).

2) The firm plans to repurchase A-shares totaling Rmb50-100mn and H- shares totaling Rmb150-400mn. The A-share repurchase is intended for the firm’s equity incentive program, while the H-share repurchase is aimed at reducing registered capital. The A-share repurchase price will not exceed Rmb17.08/sh, and each H-share repurchase will not exceed 105% of the closing price of H-shares on the Hong Kong Stock Exchange for the five trading days prior to the repurchase.

Financials and valuation

We keep our 2025 and 2026 earnings forecasts largely unchanged at Rmb9.23bn and Rmb10.93bn for A-shares. We keep our 2025 and 2026 earnings forecasts largely unchanged at Rmb9.16bn and Rmb11.09bn for H-shares. A-shares are trading at 14.1x 2025e and 11.9x 2026e P/E, and H-shares at 9.1x 2025e and 7.4x 2026e P/E. We maintain OUTPERFORM ratings for A- and H-shares. We maintain our target prices of Rmb16.00 (17.4x 2025e and 14.7x 2026e P/E with 24% upside) for A-shares and HK$10.00 (10.1x 2025e and 8.2x 2026e P/E with 10% upside) for H- shares.

Risks

Demand disappoints; supply growth beats expectations.