Core Investment Views
Henan Shenhuo Coal & Power Co.,Ltd.'s net profit attributable to shareholders declined 17% in H1 2025. The company achieved revenue of 20.43 billion yuan (up 12.1% year-on-year), net profit attributable to shareholders of 1.9 billion yuan (down 16.6% year-on-year), and adjusted net profit attributable to shareholders of 2.01 billion yuan (down 6.8% year-on-year). Net cash flow from operating activities reached 4.43 billion yuan.
The decline in company profitability was primarily due to falling coal prices. Coal production in H1 2025 returned to normal levels at 3.71 million tons with increased output and reduced costs. The coal business production cost in H1 2025 was 682 yuan/ton, significantly lower than 862 yuan/ton in 2024. However, coal prices declined more substantially, with H1 2025 coal selling price at 773 yuan/ton, down 260 yuan/ton compared to 2024. H1 2025 coal gross profit per ton was 91 yuan, down 78 yuan from 2024. Since late June, coking coal prices have bottomed out and rebounded. As of mid-August, Yongcheng anthracite and Xuchang lean coal prices have rebounded by 200-300 yuan/ton, and the company's coal segment profitability is expected to improve in Q3.
The electrolytic aluminum segment maintains steady profitability. H1 2025 electrolytic aluminum production reached 870,000 tons, marking the first full-capacity year since Yunnan Shenhuo's commissioning, with potential for further production increases through enhanced current optimization. In H1 2025, the company's electrolytic aluminum operating cost was 12,283 yuan/ton, with gross profit per ton of 3,986 yuan/ton, essentially flat compared to 4,014 yuan/ton for full-year 2024. Xinjiang Shenhuo remains the most profitable operation, achieving net profit of 1.24 billion yuan in H1 2025. If sales volume was 400,000 tons, the net profit per ton would be 3,088 yuan. Yunnan Shenhuo welcomed its first full-capacity year since commissioning, with H1 2025 net profit of 983 million yuan. If sales volume was 470,000 tons, the net profit per ton would be 2,091 yuan.
Risk Warnings: Risk of alumina price increases, risk of aluminum price declines, risk of coal price declines.
Investment Recommendation: Maintain "Outperform" Rating
Assuming aluminum spot prices of 20,500 yuan/ton for 2025-2027, alumina prices of 3,300 yuan/ton (previously 3,100 yuan/ton), prebaked anode prices of 5,000 yuan/ton (previously 4,500 yuan/ton), Yunnan electricity prices including tax of 0.43 yuan/kWh (previously 0.45 yuan/kWh), Xinjiang Shenhuo power generation cost of 0.236 yuan/kWh, and Henan anthracite prices of 1,000 yuan/ton, we forecast 2025-2027 revenues of 39.6/39.8/39.8 billion yuan and net profit attributable to shareholders of 4.56/4.78/4.84 billion yuan (previously 5.54/5.65/5.72 billion yuan), representing year-on-year growth rates of 5.9/4.9/1.2%. Diluted EPS is projected at 2.03/2.13/2.15 yuan respectively, with current stock price corresponding to PE ratios of 9.5/9.0/8.9x. The company is a leading domestic electrolytic aluminum enterprise with reasonable capacity layout. Both of the company's main products, electrolytic aluminum and coal, benefit from supply-side structural reforms and are in industry prosperity cycles. With large-scale capital expenditure completed, there is room for dividend improvement. We maintain the "Outperform" rating.
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