Results Review

1H26 results in line with our expectations Shaanxi Coal Industry announced its 1H26 results: Attributable net profit rose 48% YoY to Rmb11.27bn (Rmb1.16/sh), and recurring attributable net profit grew 35% YoY to Rmb9.74bn. In 2Q26, net profit attributable to shareholders rose 149% YoY and 68% QoQ to Rmb7.06bn, and recurring attributable net profit grew 107% YoY and 31% QOQ to Rmb5.52bn. The firm's earnings growth was in line with our expectations, as rising sales volume and prices of self-produced coal boosted earnings.

Comments: 1) Sales volume and prices of self-produced coal both increased. In 1H26, output of commercial coal rose 4.3% YoY to 91.17mnt, and sales volume of self-produced coal rose 4.1% YoY to 83.43mnt.

2) Selling prices rose. In 1H26, the average selling price of coal rose 10% YoY to Rmb483.96/t, with the selling price of selfproduced coal up 13% YoY to Rmb477.13/t. During the same period, the pithead price of thermal lump coal in Yulin, Shaanxi rose 15% YoY.

3) Costs edged up. In 1H26, the unit all-in cost of raw washed coal rose Rmb2.84/t YoY to Rmb282.84/t, with material costs down Rmb2.55/t, salary costs down Rmb1.99/t, and taxes and surcharges up Rmb7.24/t.

4) Profit of power business declined due to falling electricity prices. In 1H26, electricity sales volume rose 8.02% YoY to 17.95bn kWh, electricity selling price fell 6.87% YoY to Rmb379.63/MWh, all-in cost fell 3.6% YoY to Rmb330.24/MWh, and gross profit of the power business fell 14% YoY to Rmb966mn.

5) Investment income rose 188% YoY to Rmb3.65bn in 1H26, mainly due to YoY increase in income from disposal of some equity investments in 2Q26.

6) The firm plans to pay an interim dividend of Rmb564mn for 1H26, accounting for 5% of the firm's net profit attributable to shareholders over the same period.

Trends to watch

Rising coal prices support the firm's earnings. As stricter safety supervision limits the growth of coal mines, we expect tight coal supply-demand conditions to continue in 2H26, likely supporting coal prices to stay at elevated levels.

Steady progress in incremental projects. The firm's coal-fired units in operation or under construction are 21.58GW and 10GW, respectively. We expect the incremental projects of the firm's power business to be implemented, as Shimen Phase III starts commercial operation and the Hechuan coal-fired power project starts construction. In addition, the environmental impact assessment (EIA) revision and approval for Yushen Phase III and IV are advancing, and Xiaohaotu No.1 has been included in the key research pipeline. We are upbeat on the succession of the firm's advanced coal production capacity in the medium and long term.

Financials and valuation

We keep our 2026 and 2027 earnings forecasts largely unchanged. The stock is trading at 13.2x 2026e and 13.2x 2027e P/E. We maintain our OUTPERFORM rating and target price of Rmb29.00, implying 14.1x 2026e and 14.1x 2027e P/E and offering 7% upside.

Risks

Weaker-than-expected demand recovery; higher-than-expected supply in the industry; disappointing progress of projects.