1Q25 results slightly missed our expectations

China Shenhua Energy announced its 1Q25 results: Net profit attributable to shareholders of Shenhua A-shares fell 18% YoY and 5.1% QoQ to Rmb11.9bn, implying EPS of Rmb0.60. Recurring attributable net profit declined 29% YoY and 17% QoQ to Rmb11.7bn. Attributable net profit of H-shares fell 19% YoY and rose 13% QoQ to Rmb13.4bn.

We attribute the difference in A- and H-share earnings to differences in provisions for simple production maintenance, safety production, and other related expenditures under different accounting standards. The firm's 1Q25 results slightly missed our expectations, mainly due to falling sales volume and prices of coal and power businesses, with the transportation business also dragged by weak coal demand, in our view.

Comments:

In 1Q25, the firm’s gross profit (for A-shares before elimination on consolidation) was Rmb15.5bn (-23% YoY) for coal, Rmb3.2bn (-21% YoY) for power, Rmb4.2bn (-6.0% YoY) for railway, Rmb747mn (-9.5% YoY) for port, Rmb60mn (-56% YoY) for shipping, and Rmb117mn (+23% YoY) for coal chemical.

Coal output and sales volume declined. In 1Q25, output and sales volume of self-produced coal fell 1.1% YoY and 4.7% QoQ to 82.50mnt and 78.50mnt (-0.2% and -4.4% QoQ).

Coal ASP declined YoY. In 1Q25, the ASP of self-produced coal fell 8.4% YoY and 6.2% QoQ to Rmb484/t. The price of Qinhuangdao 5,500kcal thermal coal fell 20% YoY and 12% QoQ to about Rmb727/t, and the average price of the medium- and long-term coal contracts declined 3.1% YoY and 1.6% QoQ to about Rmb687/t.

In 1Q25, the unit production cost of coal for A-shares rose 2.3% YoY and 24% QoQ to Rmb195.8/t, with personnel expenses rising 6.7% YoY to Rmb65.3/t and repair and maintenance cost rising 15% YoY to Rmb9.7/t.

In 1Q25, total power output dispatch fell 11% YoY to 47.47bn kWh. Power tariff fell 5.6% YoY to Rmb386/MWh. The average cost of power output dispatch fell 3.1% YoY to Rmb353.7/MWh. Transportation turnover of self-owned railways, shipment volume, and turnover fell 12%, 35%, and 34% YoY.

Net operating cash inflow fell 26% YoY to Rmb20.5bn in 1Q25.

Trends to watch

Steady progress in construction projects; asset injection to attract resources. According to corporate filings, the firm is advancing preliminary procedures for the Xinjie No. 1 Mine and Xinjie No. 2 Mine projects in the Xinjie Taigemiao Mining Area. The firm has commenced the construction of the vertical shafts of these projects. Meanwhile, the fifth phase of the Huanghua Port (Coal Port Area) project has started construction in full swing. In addition, the firm plans new asset injections. Looking ahead, we expect the firm to consolidate its advantages in the coal business and strengthen synergies along the value chain.

Financials and valuation

We keep our 2025 and 2026 A- and H-share earnings forecasts largely unchanged. A-shares are trading at 14.7x 2025e and 14.6x 2026e P/E, and H-shares are trading at 10.2x 2025e and 10.1x 2026e P/E. We maintain our OUTPERFORM ratings and target prices for A- and H- shares, implying 16.0x 2025e and 15.9x 2026e P/E for A-shares and 8.6% upside, and 11.9x 2025e and 11.8x 2026e P/E for H-shares and 16.9% upside.

Risks

Demand recovery disappoints; supply growth beats expectations.