1H25 results miss our expectation

Shaanxi Coal Industry announced its 1H25 results: Net profit attributable to shareholders fell 31% YoY to Rmb7,638mn (implying EPS of Rmb0.79), and recurring net profit attributable to shareholders dropped 35% YoY to Rmb7,223mn. In 2Q25, the firm’s net profit attributable to shareholders fell 55% YoY and 41% QoQ to Rmb2,834mn, and recurring net profit attributable to shareholders dropped 41% YoY and 54% QoQ to Rmb2,671mn. The decline in the firm’s gross profit in 2Q25 is in line with our expectation, but the decline in its net profit is sharper than we expected, mainly due to higher-than-expected income tax.

Production and sales volumes increased in 1H25, but production

volume slightly fell in 2Q25. In 1H25, the firm’s production volume of commercial coal rose 1.1% YoY to 87.4mnt, and sales volume of self- produced coal rose 2.9% YoY to 80.16mnt (sales volumes of self- produced coal in Binhuang mining area and northern Shaanxi mining area rose 15% YoY and fell 1.8% YoY). In 2Q25, the firm’s production volume of commercial coal fell 3.3% YoY and 1.1% QoQ to 43.46mnt, and sales volume of self-produced coal rose 0.2% YoY and 2.7% QoQ to 40.62mnt.

Selling prices fell in 1H25. In 1H25, the firm’s ASP of self-produced coal fell by 22% or Rmb118/t YoY to Rmb420.4/t. The average market price of 6,000kCal thermal coal lumps in Yulin of Shaanxi fell 27% YoY over the same period, and dropped 29% YoY and 15% QoQ in 2Q25.

Cost relatively stable. In 1H25, the firm’s unit all-in cost of raw coal preparation was Rmb280/t (-0.49% YoY or -Rmb1.39/t), with material, salary, and maintenance costs per tonne of coal rising by Rmb3.68/t, falling by Rmb2.17/t and growing by Rmb4.31/t YoY.

Electricity business improved in 2Q25. In 1H25, the firm’s electricity

sales volume fell 11% YoY to 16.62bn kWh, with ASP rising 0.2% YoY to Rmb407.6/MWh. In 2Q25, the firm’s electricity sales volume rose 3.3% YoY and 4.0% QoQ to 8.47bn kWh.

In 1H25, the firm’s investment income fell 2.4% YoY to Rmb1,268mn with income of gains and losses from fair value changes at Rmb447mn (+Rmb1,089mn YoY). The firm’s income tax increased considerably QoQ　　in 2Q25. Its income tax fell by 17% or Rmb593mn YoY to Rmb2.96bn in 1H25, and dropped 18% YoY but rose 55% QoQ to Rmb1.8bn in 2Q25, implying a quarterly effective tax rate of 25.7% (+8ppt YoY and +12ppt QoQ), which we attribute to higher taxes and fees caused by the firm’s exit from an asset management program in 2Q25. The firm plans to pay an interim dividend of Rmb0.39 per 10 shares (tax included) for 1H25, equivalent to about 5% of EPS in 1H25.

Trends to watch Earnings to improve amid rebounding coal prices and recovering

electricity demand. As of August 22, the market price of 6,000kCal thermal coal in Yulin of Shaanxi was Rmb630/t, and the price has averaged Rmb604/t since 3Q25, rebounding from Rmb588/t in 2Q25. The firm disclosed that its electricity sales volume rose 27.97% YoY in July.

Looking ahead, we expect the firm's earnings to improve as coal supply and demand marginally improve and coal-fired electricity demand recovers.

Financials and valuation

We cut our 2025 and 2026 earnings forecasts 11% and 11% to Rmb16.5bn and Rmb16.5bn due to downward revisions to assumptions such as coal prices. The stock is trading at 12.5x 2025e and 12.5x 2026e P/E. We maintain OUTPERFORM rating. Despite our downward revisions to earnings forecasts, we are upbeat on the firm’s low-cost advantage and the attractiveness of the firm's dividends amid changes in risk appetite.

We keep our TP unchanged at Rmb23, implying 13.5x 2025e and 13.5x 2026e P/E, offering 8% upside.

Risks

Disappointing demand; sharper-than-expected increases in supply.