CHINA SHENHUA ENERGY(601088)：EARNINGS STABLE AND RESILIENT; DIVIDENDS SUSTAINED-格隆汇

机构：中金公司
研究员：Yan CHEN

2024 results beat market expectations
Shenhua announced its 2024 results: Net profit attributable to shareholders of Shenhua A-shares fell 1.7% YoY to Rmb58.7bn, and recurring net profit fell 4.4% YoY to Rmb60.1bn. Attributable net profit of H- shares fell 3.4% YoY to Rmb62.4bn. We attribute the better-than-expected results to efficiency improvement, cost reduction, and YoY decline in impairments.
In 4Q24, net profit attributable to shareholders of A-shares fell 10% YoY and 24% QoQ to Rmb12.6bn, and recurring attributable net profit fell 6.4% YoY and 15% QoQ to Rmb14.1bn, mainly due to concentrated impairment provision and increased non-operating expenses.
Comments:
1) Coal output increased. Commercial coal output rose 0.8% YoY to 327.1mnt in 2024. In 4Q24, output rose 0.2% YoY and 1.8% QoQ to 82.7mnt.
2) Coal prices declined. In 2024, prices of self-produced coal fell 3.7% YoY to Rmb527/t, and the annual prices of long-term coal contracts fell 1.8% YoY to Rmb491/t. In 4Q24, prices of self-produced coal were Rmb516/t, down 6.4% YoY and 2.2% QoQ.
3) Coal cost is relatively stable. The production cost per tonne of coal for H-shares rose 2.5% YoY to Rmb166.4 in 2024. Specifically, labor cost per tonne of coal rose Rmb9.9 YoY to Rmb47.3, mainly due to a low base and increased social security contributions.
4) Electricity sales volume rose 5.3% YoY to 210.28bn kWh in 2024. The electricity generation and sales volume increased further driven by the on-stream operation of generating units.
5) In 2024, self-owned railway transport turnover, shipping freight volume, and shipping turnover changed +0.9%, -15%, and -9.3% YoY, and polyethylene and polypropylene output fell 7.1% and 7.9% YoY.
6) In 2024, investment income rose Rmb1.06bn YoY and asset impairment loss fell Rmb3.16bn YoY.
Trends to watch
1) Shenhua has a capex plan of Rmb41.79bn for 2025, including Rmb9.68bn, Rmb17.41bn, Rmb8.17bn, and Rmb5.45bn on coal, electricity, transportation, and chemicals.
2) Upbeat on long-term growth. We are upbeat on Shenhua’s growth potential and expect it to strengthen its advantage in the integrated coal value chain, as Xinjie No.1 & No.2 mines (total capacity: 16mnt/y) and Tarangaole coal mine (10mnt/y) come online, power generation units (total installed capacity: 8,640MW) expand, railway and port infrastructure facilities expand, and the Baotou coal-based olefin project (capacity: 750,000t/y) starts operation.
3) Dividends are stable and sustainable. Shenhua plans to pay a dividend of Rmb2.26/sh (tax included) for 2024, implying a dividend payout ratio of 76.5%, with dividend amount staying flat YoY and beating market expectations. Given Shenhua’s free cash flow and net cash position, we believe the firm will maintain a stable dividend payout (promised dividend payout ratio of no less than 65% over 2025-2027).
Financials and valuation
We introduce our 2025 and 2026 EPS forecasts at Rmb2.64 and Rmb2.64 for A-shares and Rmb2.85 and Rmb2.84 for H-shares. A-shares are trading at 13.9x 2025e and 13.9x 2026e P/E, and H-shares at 10.4x 2025e and 10.2x 2026e P/E. We expect Shenhua to maintain resilient earnings and stable and sustainable dividends despite falling coal prices. We expect its medium-to-long-term value to continue to emerge. We maintain OUTPERFORM for A-shares and H-shares, and raise our TPs for A-shares and H-shares by 29% and 43% to Rmb42.00 and HK$36.00, implying 15.9x 2025e and 15.9x 2026e P/E for A-shares, and 11.9x 2025e and 11.8x 2026e P/E for H-shares, offering 15% and 15% upsides.
Risks
Demand recovery disappoints; supply growth beats expectations.