HSBC: China Shenhua Energy – Coal mining to improve gradually, but payout outlook may stay flat
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HSBC maintains a Hold rating on China Shenhua Energy (1088 HK / 601088 CH), slightly raising its H-share target price to HKD 43.00 (from HKD 42.00) and A-share target price to RMB 49.00 (from RMB 48.00). The bank expects the coal mining business to gradually improve in 2026 as spot coal prices stabilize around RMB 700 per ton, supported by constructive momentum heading into the summer peak season. Self-produced coal unit costs rose only 0.5% year-on-year in 2025 to RMB 167 per ton, and cost growth is expected to remain below 4% in 2026.
However, the power generation business may drag down overall earnings in 2026 due to simultaneous downward pressure on electricity tariffs and utilization hours. The company reported 2025 net profit of RMB 54.2 billion, down 9% year-on-year, with an IFRS dividend payout ratio of 77%, well above its 65% cash dividend policy. Operating cash flow stood at RMB 75.1 billion, representing an 18% decline. Capital expenditure is budgeted at RMB 38 billion for 2026, with an additional RMB 10-20 billion expected for coal chemical and mining projects.
Despite the elevated payout ratio, earnings per share is projected to remain roughly flat year-on-year. HSBC upgraded its 2026-27 earnings forecasts by 2-3% and introduced 2028 estimates. Upside and downside risks remain tied to coal price fluctuations.