1Q26 results in line with our expectations

China Coal Energy announced its 1Q26 results: A-share net profit attributable to shareholders fell 3.2% YoY to Rmb3.84bn, and recurring attributable net profit fell 2.4% YoY to Rmb3.85bn. H-share attributable net profit fell 3.0% YoY to Rmb3.87bn. The firm's 1Q26 results are in line with our expectations.

Comments:

1) Coal output declined. In 1Q26, commercial coal output fell 9.5% YoY and 10% QoQ to 30.17mnt, with thermal coal and coking coal output down 7.1% and 38% YoY (down 5.8% and 49% QoQ) to 28.51mnt and 1.66mnt. We attribute the decline in output to geological faults at the Wangjialing Coal Mine, as well as water accumulation issues at certain other mines.

2) Selling prices of self-produced coal rose slightly YoY. In 1Q26, selling prices of self-produced coal rose 0.8% YoY and fell 4.1% QoQ to Rmb496/t, with selling prices of thermal coal and coking coal up 2.4% and 7.5% YoY (down 2.5% and 4.1% QoQ).

3) Cost per tonne of coal increased. On an A-share basis, cost per tonne of self-produced coal sold rose 3.3% YoY and 19% QoQ to Rmb279 in 1Q26 (excluding freight and port charges, the cost per tonne rose 4.6% YoY and 19% QoQ to Rmb218). We believe the increase in costs was mainly driven by higher labor costs, as some outsourced production teams were brought in-house and the social security contribution base rose. Meanwhile, we think declines in output and sales volumes weakened the dilution effect on unit costs.

4) Profit of coal chemical business declined. In 1Q26, revenue from major coal chemical products fell 1.5% YoY to Rmb4.60bn, with costs up 1.8% YoY to Rmb3.88bn, and gross profit down 16% to Rmb724mn.

Trends to watch

Upbeat on improvement in coal business. Since April, prices of domestic thermal coal and overseas mid- to low-calorific thermal coal have trended upward. The persistent inversion between domestic and overseas coal prices has dampened import incentives among domestic power plants. As power plants begin to restock in summer, we expect thermal coal demand to strengthen marginally, with supply-demand conditions tightening and supporting further upside in coal prices.

Watch earnings upside of coal chemical business. As of April 27, market prices of the firm’s major coal chemical products have increased 10–40% compared with last year’s average. Given the rise in oil and gas prices, we expect coal chemical product prices to remain elevated in the near term, boosting earnings of the firm’s coal chemical business.

Financials and valuation

We keep our 2026 and 2027 earnings forecasts largely unchanged for A-shares and H-shares. A-shares are trading at 11.8x 2026e and 11.8x 2027e P/E, and H-shares are trading at 8.4x 2026e and 8.4x 2027e P/E. We maintain OUTPERFORM ratings and keep our target prices unchanged for A-shares at Rmb19.00 and H-shares at HK$15.00. Our A-share TP implies 12.8x 2026e and 12.8x 2027e P/E with 9% upside. Our H-share TP implies 9.3x 2026e and 9.2x 2027e P/E with 10% upside.

Risks

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