2024 results in line; 1Q25 results beat our forecast

Shaanxi Coal Industry announced its 2024 and 1Q25 results: In 2024, attributable net profit fell 3.2% YoY to Rmb22.36bn, and recurring attributable net profit dropped 14.3% YoY to Rmb21.16bn. In 1Q25, net profit attributable to shareholders fell 1.2% YoY to Rmb4.81bn, and recurring net profit fell 15% YoY to Rmb5.35bn. The firm’s 1Q25 results beat our expectations, thanks to a lower proportion of minority interests and a YoY turnaround in income from fair value changes.

2024 results review:

1) Output continues to increase. In 2024, output of commercial coal rose 4.1% YoY to 170mnt. Total sales volume grew 9.1% YoY to 258mnt, with sales volume of self-produced coal rising 4.5% to 160mnt.

2) Coal prices declined. ASP of self-produced coal fell 10% YoY to Rmb532/t in 2024. The spot price of Qinhuangdao 5,500kcal thermal coal fell 11% YoY to Rmb861/t.

3) Cost per tonne of coal improved. In 2024, the all-in cost per tonne of raw coal preparation fell Rmb6.7 (down 2.2% YoY) to Rmb289.92. Material costs fell Rmb1.24 (down 5.56% YoY), maintenance and repair costs rose Rmb3.31 (up 27.58% YoY), and related taxes and surcharges fell Rmb8.70 (down 12.65% YoY).

4) Gross profit of self-produced coal dropped Rmb7.02bn YoY to Rmb46.7bn in 2024, and gross profit per tonne of self-produced coal fell 17% YoY to Rmb292.

5) In 2025, electricity sales volume rose 4.4% YoY to 35.13bn kWh, electricity price fell 4.8% YoY to Rmb399.2/MWh, and all-in-cost per kWh declined 3.8% YoY to Rmb341.4/MWh.

6) Loss from fair value changes narrowed by Rmb4.35bn YoY to Rmb253mn in 2024. As of end-2024, the firm's financial assets measured at fair value stood at about Rmb8.5bn (-Rmb10.3bn YoY), including Rmb3.46bn from private equity funds and Rmb1.69bn from stocks. We believe its exposure to fair value changes narrowed markedly.

Comments on 1Q25 results:

1) Coal output and sales volume maintain growth. In 1Q25, coal output rose 6.0% YoY to 43.94mnt, and sales volume of self-produced coal rose 5.8% YoY to 39.55mnt.

2) Power generation declined, dragged by weak demand. Power generation fell 23% YoY to 8.74bn kWh, with sales volume down 23% YoY to 8.15bn kWh in 1Q25.

3) In 1Q25, investment income rose Rmb174mn YoY to Rmb740mn, income from fair value changes was Rmb292mn, and unrealized gains increased Rmb91.85mn QoQ (vs. -Rmb917mn in 1Q24).

4) Minority interests accounted for 34% of the firm's total profit in 1Q25, down 6.8% YoY.

Trends to watch

Dividend payout sustainable; upbeat on long-term value. The firm's full-year cash dividend may reach Rmb13.07bn in 2024, accounting for 58.45% of its attributable net profit, implying a dividend yield of 6.7%. Given the firm's net cash position, ample cash flow, and improved earnings stability from deeper coal-power integration, we expect the firm to maintain stable dividend payouts and are upbeat on its long-term investment value.

Financials and valuation

Due to lower coal price assumptions, we cut our 2025 earnings forecast 18% to Rmb18.5bn. We introduce our 2026 earnings of Rmb18.6bn. The stock is trading at 10.5x 2025e and 10.4x 2026e P/E. We maintain an OUTPERFORM rating and cut our target price 15% to Rmb23.00, implying 12.0x 2025e and 12.0x 2026e P/E with 15% upside.

Risks

Demand recovery disappoints; supply growth beats expectations.