1H25 results in line with preannouncement and beat our expectations China Shenhua Energy (Shenhua) announced its 1H25 results: Net

profit attributable to shareholders of Shenhua A-shares dropped 12% YoY to Rmb24.64bn, and recurring net profit fell 17.5% YoY to Rmb24.31bn.

Net profit attributable to shareholders of Shenhua H-shares dropped 14.8% YoY to Rmb26.71bn. In 2Q25, net profit attributable to shareholders of Shenhua A-shares fell 5.6% YoY and grew 6.2% QoQ to Rmb12.69bn, and that of Shenhua H-shares dropped 10.1% YoY and 0.3% QoQ to Rmb13.33bn. The firm’s results are in line with its preannouncement and beat our and market expectations, mainly due to effective cost control in 2Q25.

Comments: 1) On an A-share basis, gross profit of coal and power businesses before consolidation and elimination fell 14.8% and 7.9% YoY to Rmb32.53bn and Rmb6.53bn. 2) Coal output edged down. In 1H25, output of commercial coal fell 1.7% YoY to 165.4mnt, and sales volume of self-produced coal fell 3.4% YoY to 162mnt. In 2Q25, commercial coal output fell 2.2% YoY and rose 0.5% QoQ to 83mnt. 3) Due to the high proportion of long-term contracts and the integrated model, the decline in coal prices was limited. In 1H25, the selling price of self-produced coal fell 9.3% YoY to Rmb478/t, vs. a 22.3% YoY decline in prices of Qinhuangdao 5,500kcal thermal coal. In 2Q25, the selling price of self-produced coal dropped 10% YoY and 2.5% QoQ to Rmb472/t. 4) Cost control more efficient than expected. On an A-share basis, the production cost per tonne of coal fell 7.7% YoY to Rmb177.7 in 1H25. In 2Q25, production cost per tonne was Rmb159.7, down 18% YoY and 18% QoQ. Specifically, labor and other costs per tonne fell 18% and 23% YoY (down 31% and 23% QoQ) to Rmb44.9 and Rmb57.2. 5) In 1H25, sales volume of electricity fell 7.3% YoY to 92.91bn kWh, electricity sales price fell 4.2% YoY to Rmb386/MWh, and electricity sales cost fell 4.1% YoY to Rmb346.9/MWh on an A-share basis. In 1H25, self- owned railway transport turnover, shipping freight volume, and shipping turnover fell 5.3%, 24%, and 30% YoY. 6) The firm plans to pay an interim dividend of Rmb0.98 (tax included), equivalent to 79% of the EPS for A-shares (previously announced interim　　payout ratio of no less than 75%).

Trends to watch We are upbeat on the firm’s earnings improvement in 2H25. We

believe domestic coal production will increasingly prioritize safety in 2H25, which may support orderly output. In this context, we expect the marginal improvement in coal supply-demand dynamics to underpin prices, and we are upbeat on the firm’s earnings improvement in 2H25.

The firm to enter a new cycle on the back of asset acquisition.

Previously, it announced a plan to acquire group assets. We estimate that the deal will modestly boost its EPS, with limited dilution to ROE. Overall, we expect the acquisition to strengthen the firm’s balance sheet and improve operational integration. In addition, the firm maintains sufficient cash reserves for dividend payments.

Financials and valuation

Due to lower price assumptions, we cut our 2025 earnings forecasts 4% and 6% to Rmb50.6bn and Rmb53.7bn for A- and H-shares, and keep our 2026 earnings forecasts largely unchanged. A-shares are trading at 14.7x and 14.1x 2025e and 2026e P/E, and H-shares are trading at 11.8x and 11.2x 2025e and 2026e P/E. We maintain an OUTPERFORM rating.

Given changing risk appetite, the increasing attractiveness of the firm’s dividends, and its resilient earnings, we maintain our TPs of Rmb42 (16.5x 2025e and 15.8x 2026e P/E with 12% upside) and HK$36 (12.2x 2025e and 11.6x 2026e P/E with 3% upside) for A- and H-shares.

Risks

Disappointing demand; higher-than-expected supply expansion; higher- than-expected consideration for asset acquisition.