Morgan Stanley: Shenhuo Coal & Power — 1Q 2026 Preliminary Earnings Beat Estimates
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Morgan Stanley reports that Shenhuo Coal & Power (000933.SZ) expects first-quarter 2026 net profit to reach 2.3 billion RMB, significantly beating the firm's estimate of 2.1 billion RMB. This exceptional performance translates to a remarkable 217% year-over-year increase and a 336% sequential rise, primarily fueled by substantial profit expansion in the aluminum segment.
The earnings surge reflects highly favorable market dynamics. Aluminum prices climbed 17% year-over-year and 11% sequentially, while alumina prices plummeted by 31% year-over-year due to abundant global supply, effectively lowering raw material costs. This margin accretion establishes a robust foundation for the remainder of 2026.
Morgan Stanley anticipates that strong earnings momentum will persist throughout the year, supported by structural supply disruptions in international markets. Approximately 3.13 million tonnes of overseas smelting capacity has been suspended year-to-date, including operations in Mozambique and the Middle East. This contraction represents roughly 4% of global supply, effectively sustaining elevated aluminum pricing. Although bauxite prices may experience volatility from rising freight rates and potential Guinean export controls, ample alumina availability is expected to keep prices fluctuating near production cost levels.
Consequently, Shenhuo's lower production costs and a favorable aluminum pricing environment will secure highly profitable growth in 2026. Morgan Stanley reiterates an Overweight rating with a target price of 40.90 RMB. Trading at 31.98 RMB, the stock offers 28% upside potential.