China Shenhua (01088) net profit increased by up to 21% in half a year: the three-year decline has stopped, and the path of revaluation is about to begin?

On July 14, China Shenhua, the “Big Brother of Coal”, revealed its performance forecast for the first half of the year: net profit due to mother is expected to be 26.3 billion yuan to 29.8 billion yuan, up 6.9% to 21.1% year on year, significantly exceeding Morgan Stanley's expectations of 26 billion yuan; net profit after deducting non-net profit is 26.1 billion yuan to 28.1 billion yuan, up 7.4% to 15.6% year on year.

After successful results, Hong Kong stock China Shenhua (01088) boosted in response, with an intraday increase of close to 3%. By the close of trading on July 23, there was an increase of more than 6% in just 8 trading days, bucking the trend against the backdrop of weak overall market sentiment.

However, there are also significant differences in the market — coal prices soared and fell during the rainy season, daily consumption of power plants weakened, and port inventories rose, and the downward cycle of capital concerns suppressed annual profits; on the other hand, looking at the company's fundamentals, the 100 billion asset restructuring, which took a year and cost 133,598 billion yuan, has been fully implemented. Combined with the integrated model of the entire coal circuit and chemical industry chain, it allowed Shenhua to break out of the low cycle of three consecutive years of net profit decline from 2023 to 2025.

When a coal giant, whose net profit declined for three consecutive years, handed over a report card with a maximum increase of more than 20% in the first half year after completing the 133.5 billion asset merger and acquisition, what the market needed to re-examine was not only the flexibility of performance, but also the new direction of this “coal and electricity integration” giant ship.

The performance cycle is reversed, and the 100 billion restructuring opens the ceiling for growth

Looking at the split results, signs of China's Shenhua cycle reversal have gradually surfaced.

In the first quarter of 2026, China Shenhua's profit gradually weakened due to three major factors. During the period, the company achieved revenue of 70.397 billion yuan, a year-on-year increase of 1.17%, and net profit to mother was only 10.667 billion yuan, a year-on-year decrease of 10.73%. Among them, the three main reasons for the decline in Q1 profit were: the increase in the spot price of coal fell short of expectations (the average actual sales price was 487 yuan/ton, lower than the agency's expectations of 502 yuan/ton); coal sales fell short of expectations, and investment income in joint ventures fell 62.2% year on year.

Looking at the business structure, Zhitong Finance has observed that coal is still the basic market of China's Shenhua, and there is still volume and price pressure in the short term. In the first quarter of 2026, the company's coal division revenue increased slightly by 0.2% year on year, mainly due to a 21.2% year-on-year increase in outsourced coal sales, but gross profit and total profit declined by 9.4% and 12.2%, respectively.

The power sector is the core driver of cycle hedging. In 2025, the power generation business revenue was 82.708 billion yuan, accounting for 28.04% of total revenue, making it the second largest source of revenue after coal. The integrated collaborative logic was fully verified in the quarterly report: the average price of electricity sales in China fell 3.1% year on year, but total electricity sales increased 11% year on year. Relying on our own Kengkou coal to reduce the cost of coal combustion, the unit cost of electricity sales fell 4.4% year on year, and gross profit of the power generation sector increased 9.6% year on year.

At the time, the market's profit expectations for China Shenhua for the whole year were conservative. However, judging from the recovery performance that exceeded expectations in the second quarter, the inflection point of the company's growth has already been confirmed.

Specifically, in the first half of the year, China Shenhua's net profit center was about 28.05 billion yuan. Excluding Q1's 10.667 billion yuan, Q2 net profit is expected to reach 15.6 billion yuan to 19.1 billion yuan, an increase of 46% to 79% over the previous year. Morgan Stanley pointed out that the company's performance in the first half of the year was better than its expected 26 billion yuan, and Q2 net profit increased 23% to 51% year over year. Exceeding expectations in Q2 mainly reflects the same relatively high coal prices (especially in the second quarter), as well as an increase in the profit contribution of the coal chemical, railway, and port businesses.

The “stress test” in the first quarter did not break through the company's profit bottom, and the “rebound confirmation” in the second quarter unquestionably proved the cyclical resilience of China's Shenhua coal and electricity integration.

It is worth noting that along with the injection of 100 billion dollars of assets, China's Shenhua will also achieve a qualitative transformation from “endogenous growth” to “epitaxial expansion,” opening the ceiling for long-term growth.

In the first half of 2026, China Shenhua completed the acquisition of shares in 12 core enterprises under the controlling shareholder National Energy Group at a price of 133,598 billion yuan. In addition to Shanxi Jinshen Energy Co., Ltd., 11 other target companies were included in the scope of consolidation of the company's financial statements. This transaction set a record for the largest share issuance in A-share history to purchase assets.

After the asset injection, the company's resource endowment also changed qualitatively — the company's coal resources, coal recoverable reserves, coal production, power generation installed capacity, and polyolefin production reached 68.49 billion tons, 34.5 billion tons, 512 million tons, 60.9 GW, and 1.88 million tons respectively, up 64.7%, 97.8%, 27.8%, and 213.3%, respectively, from before the transaction, and the advantages of integrated scale were further enhanced.

The company then drastically raised its business target for 2026: commercial coal production target increased by 55.5% to 513 million tons, coal sales increased by 42.1% to 618 million tons, and power generation increased by 28.8% to 288.1 billion kilowatt-hours. The capital expenditure plan was raised simultaneously by 47.2% to 56 billion yuan, with power generation and coal chemicals increasing by 71.5% and 120.5%, respectively. The company's annual revenue target for 2026 is 360 billion yuan, and the overall business scale has reached a new level compared to 2025.

If in the past, Shenhua was a giant ship that sailed steadily on an existing waterway, then after the asset was injected, Shenhua was replaced with a more horsepower engine and sailed into a wider sea area.

Thermal coal has entered a weak balance cycle, and valuation springs are yet to be released

Judging from industry trends, in the fluctuating coal price cycle, the Changxie mechanism may be the core undercard of China's Shenhua crossing the cycle.

According to CCTD China Coal Market Network data, thermal coal prices rose significantly in the first half of 2026. At the end of June, the spot price of 5,500 kcal in the Bohai Rim Rim rose to 842 yuan/ton, up 22.74% from the beginning of the year. However, rainfall during the rainy season dragged down the daily consumption of power plants, port inventories rose, coal prices fell in stages, and pessimism was fostered in the market.

Supply and demand-side constraints clearly indicate a long-term weak balance pattern: domestic raw coal production shrinks year-on-year, normalization of safety supervision suppresses new supply, and imported coal cannot completely replace high-calorific value domestic coal. Morgan Stanley pointed out that after the end of the rainy season, the high temperature season will arrive, centralized storage of power plants will support coal prices, and the company's profit is expected to remain steady in the third quarter.

Among these, the Changxie mechanism may be to build an exclusive safety cushion for Shenhua — according to the Zhongtai Securities Research Report, in the first half of 2026, the average price of the 5,500 kcal Changxie in Qinhuangdao was only 686 yuan/ton, an increase of only 1% over the previous year; the company's Changxie Coal accounted for more than 80%. When coal prices rise, they are less flexible than pure spot coal companies, yet the downward cycle can firmly maintain the bottom line of profit.

This development characteristic also prompted China's Shenhua to be quite resistant to falling in the coal sector, which was volatile and weakened in the first half of the year. In the first half of 2026, the rise and fall in thermal coal prices led to an overall fluctuation and weakening in the coal sector. Compared with pure coal mining companies, China Shenhua's stock price fell significantly less in the first half of the year. Its H shares have risen by more than 17% year to date. The characteristics of capital safe-haven allocation are obvious, fully confirming the fall-resistant nature of integrated assets.

Relying on Changxie to build a profit moat, Shenhua has a strong ambition to cross the cycle. Meanwhile, at the capital market level, China's Shenhua has a dual valuation logic of defense and growth, which has also prompted the company to gradually open up space for valuation repair.

On the one hand, there is defensive logic, that is, the promise of a high percentage of dividends underpins the bottom of the valuation. The company maintains a long-term commitment of no less than 65% dividend rate, and stable and sustainable cash dividends form a solid margin of safety for valuation. Even if coal prices fall in the short term, stable dividend income can hedge against stock price fluctuations and is suitable for a steady bottom position allocation.

The other aspect is offensive logic, that is, the 100 billion restructuring brings opportunities for growth and revaluation. The traditional market defines Shenhua as a mature cycle blue chip, and the valuation center has been low for a long time; however, after asset injection, coal, electricity, and coal chemical production capacity achieved leaps and bounds, and the company switched from mature cash cows to a “dividend+growth” dual target, and the valuation is resilient.

However, it should be noted that although China's Shenhua is a relatively stable target in the ebb and flow of the coal sector, we still need to be wary of some hidden development concerns stemming from the industry and fundamentals. For example, medium- to long-term coal prices are declining, and the cyclical sector valuation center is shifting downward; large-scale capital expenditure suppresses free cash flow, and there is limited room for dividend growth; and there is a risk that asset consolidation will fall short of expectations.

In summary, China's Shenhua has used a semi-annual report that has exceeded expectations to announce the crossing of the cycle trough — the long-term cooperation mechanism has built a strong profit base, the 100 billion restructuring opens a growth channel, and the 65% dividend promise anchors the lower valuation limit. Under the triple synergy, this “coal and electricity integration” giant wheel is recalibrating the market's cognitive coordinates.

But there's always another side to a coin. If the medium- to long-term coal price center continues to decline, the cyclical sector valuation system may face a systematic downturn; the 56 billion yuan annual capital expenditure plan also squeezes free cash flow, and the room for dividend growth is not without ceiling; and the integration of over 100 billion assets, from management coordination to profit realization, will still take time to verify.