1H25 results beat our expectations

China Coal announced its 1H25 results: A-shares: Net profit attributable to shareholders fell 21% YoY to Rmb7.71bn, and recurring attributable net profit dropped 21% YoY to Rmb7.65bn. H-shares: Attributable net profit fell 32% YoY to Rmb7.33bn. In 2Q25, net profit attributable to shareholders for the A-shares rose 3.0% YoY, but fell 3.0% QoQ to Rmb4.8bn. The firm 1H25 results beat our expectations thanks to effective cost reduction and expense control. 1) Coal output increased slightly. In 1H25, the firm's commercial coal output and sales volume +1.3% and -3.6% YoY to 67.34mn and 128.68mnt. Sales volume of self-produced coal rose 1.4% YoY to 67.11mnt. In 2Q25, commercial coal output and self-produced coal sales volume rose 0.7% YoY and 1.6% YoY to 33.99mnt and 34.43mnt (+1.9%/+5.4% QoQ). 2) Coal prices declined. The selling price of self-produced coal fell 20% YoY to Rmb470/t in 1H25, and was Rmb449/t in 2Q25, down 21% YoY, and down 8.7% QoQ.

3) The cost of self-produced coal dropped notably, mainly due to cost reduction and adjustment of the use of special reserves. In

1H25, the unit sales cost of self-produced coal (excluding freight of Rmb58/t) fell Rmb32/t YoY to Rmb205/t. Specifically, material and labor costs per tonne of coal fell Rmb5.9 and Rmb6.1 YoY, and other costs per tonne fell Rmb25.3 YoY due to reduced use of safety and maintenance fees.

4) Falling chemical prices weighed on profit of coal chemicals. In

1H25, output of major chemicals rose 2.1% YoY, business revenue and cost fell 14% and 7.9% YoY, and gross profit fell 36% YoY to Rmb1,416mn.

5) In 1H25, net operating cash inflow (excluding deposits at financial companies from member units) dropped Rmb8,244mn YoY to Rmb7,496mn, and capex reached Rmb6,972bn.

Trends to watch Upbeat on earnings recovery in 2H25. As of August 22, the spot price of

5,500kcal coal in Qinhuangdao was Rmb707/t, rebounding from the YTD　　low of Rmb615/t in June. The long-term contract price of seaborne coal has also started to recover since July. With marginal improvement in industry supply and demand, we expect coal prices to improve, supporting the firm's earnings recovery.

Maintains stable interim dividend, underscoring the firm's willingness and ability to continue rewarding shareholders. The firm

announced its 1H25 dividend plan, proposing a cash dividend of Rmb0.166/sh (tax included), equivalent to 28.5%/30% of A-/H-share EPS in 1H25. The firm maintained stable dividends despite industry profit pressure, reflecting its willingness and ability to continue rewarding shareholders. Given the firm's healthy balance sheet, we are upbeat that the firm will maintain steady dividend payouts and remain attractive to investors.

Financials and valuation

Given lower assumptions such as costs, we raise our 2025 earnings forecasts for the firm’s A-shares and H-shares 5% and 5% to Rmb16.2bn and Rmb15.5bn, and raise our 2026 earnings forecasts 13% and 15% to Rmb17.8bn and Rmb17.1bn. The A-shares are trading at 9.8x and 9.0x 2025e and 2026e P/E, and the H-shares at 7.6x and 6.8x 2025e and 2026e P/E. Maintain OUTPERFORM for A-/H-shares. Given the upward earnings forecast revision and strengthened expectations for solid dividends, we raise our A-share TP 8% to Rmb14.00, implying 11.4x and 10.4x 2025e and 2026e P/E and implying 16% upside. Given the upward earnings forecast revision and increasing relative attractiveness of H- share dividend yields, we raise our H-share TP 22% to HK$11.00, implying 8.6x and 7.7x 2025e and 2026e P/E, implying 14% upside.

Risks

Disappointing demand recovery; stronger-than-expected supply expansion.