UBS Ningxia Baofeng Energy (600989) GCC 2026: Q425 Coal-to-Olefins Spread Pressured; Phase 4 of Ningdong in Focus for '26
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UBS engaged with Ningxia Baofeng Energy at the 2026 GCC, maintaining a Buy rating and a DCF-based target price of RMB 23.5. Company management indicated that the coal-to-olefins spread narrowed sequentially in Q4 2025, hitting historical lows due to declining polyolefin prices and a rebound in coal prices during November and December. However, production output improved sequentially as the Ningdong and Inner Mongolia bases returned to full capacity operations following the Q3 2025 maintenance.
Management noted that coal-to-olefins spreads have already shown improvement since the beginning of Q1 2026. The Ningdong Phase 4 olefins project is progressing on schedule and is slated for commissioning in Q4 2026. Meanwhile, the Xinjiang and Inner Mongolia olefins projects remain pending government approval.
Regarding capital allocation, Baofeng expects no major capital expenditure requirements following the completion of Phase 4. The company plans to systematically deleverage and, if free cash flow is abundant, may consider increasing dividend payouts to reinforce its commitment to shareholder returns. UBS's valuation applies a WACC of 8.6%, corresponding to 14x and 12x PE multiples for 2025E and 2026E, respectively. Key downside risks include a substantial surge in coal prices, weaker-than-expected demand for olefins and coking products, and delays in new capacity commissioning.