3Q25 results beat our expectations

China Shenhua Energy (Shenhua) announced its 3Q25 results: Net profit attributable to shareholders of Shenhua A-shares fell 6% YoY but grew 14% QoQ to Rmb14.4bn, while recurring net profit dropped 13% YoY but increased 14% QoQ to Rmb14.4bn.

In 3Q25, net profit attributable to shareholders of Shenhua H- shares dropped 12% YoY but grew 10% QoQ to Rmb14.7bn.

The QoQ improvements beat our expectations, mainly due to relatively rapid growth in profit of the firm’s power business.

Trends to watch We attribute the improved profit in 3Q25 to the power

business. On an A-share basis, gross profit rose Rmb1.93bn QoQ to Rmb27.5bn in 3Q25. Before consolidation and elimination, gross profit of the coal business dropped Rmb1.01bn QoQ to Rmb16bn, while that of the power business increased Rmb2.64bn QoQ to Rmb5.96bn.

Coal output and sales increased. In 3Q25, output of

commercial coal rose 2.3% YoY and 3.1% QoQ to 85.5mnt, and sales volume of self-produced coal rose 2.7% YoY and 4.1% QoQ to 86.8mnt.

Selling price of self-produced coal fell in 3Q25; we are

upbeat on improvement in 4Q25. In 3Q25, the selling price of self-produced coal fell 13% YoY and 3.7% QoQ to Rmb455/t.

Over the same period, prices of Qinhuangdao 5,500kcal thermal coal dropped 21% YoY but rose 5.6% QoQ. Given the rapid increase in coal prices since October, we expect the firm's selling prices to improve in 4Q25.

Effective coal cost control. On an A-share basis, production cost per tonne of self-produced coal fell 5.3% YoY but grew 3.0% QoQ to Rmb164.5 in 3Q25. Per-tonne cost of sales dropped 2.2% YoY and 0.7% QoQ to Rmb278.3.

Power business achieved deeper cost reduction QoQ. In

3Q25, electricity sales price fell 4.9% YoY and 2.6% QoQ to Rmb0.376/kWh, sales volume of electricity fell 2.5% YoY but rose 32% QoQ to 60.18bn kWh, and electricity sales cost fell 14% YoY and 12% QoQ to Rmb0.298/kWh. However, as coal prices rebound, we expect electricity costs to recover slightly in 4Q25.

On an A-share basis, effective tax rate fell 0.5ppt YoY and

4.2ppt QoQ to 19.4% in 3Q25.

Financials and valuation

Due to adjustments in cost assumption, we raise our 2025 and 2026 earnings forecasts 6% and 3% to Rmb53.4bn and Rmb54.2bn for A-shares, and raise our 2025 and 2026 earnings forecasts 5% and 3% to Rmb56.5bn and Rmb57.3bn for H- shares. A-shares are trading at 15.8x 2025e and 15.6x 2026e P/E, and H-shares are trading at 13.3x 2025e and 12.9x 2026e P/E.

We maintain OUTPERFORM ratings for A-shares and H-shares.

Given the firm’s rising earnings and enhanced dividend appeal - especially the amplified relative attractiveness of dividends for H-shares amid changing risk appetites - we raise our TPs 10% and 25% to Rmb46 and HK$45 for A- and H-shares. Our TP for A-shares implies 17.1x 2025e and 16.9x 2026e P/E, as well as 2025e and 2026e dividend yields of 4.5% and 4.5%. Our TP for H-shares implies 14.5x 2025e and 14.1x 2026e P/E, as well as 2025e and 2026e dividend yields of 5.0% and 5.1%. Our TPs for A- and H-shares offer 8.2% and 9.2% upsides.

Risks

Sharper-than-expected decline in coal prices; higher-than- expected asset acquisition price.