CHINA COAL ENERGY(601898)：1Q25 RESULTS IN LINE; QUALITY IMPROVEMENT AND COST REDUCTION PAYING OFF

　　1Q25 results in line with our expectations
　　China Coal Energy announced its 1Q25 results: Net profit attributable to shareholders fell 20% YoY to Rmb3.98bn (implying EPS of Rmb0.30) and recurring net profit fell 19% YoY to Rmb3.94bn for A-shares, in line with our expectations. Attributable net profit fell 27% YoY to Rmb3.99bn for H- shares.
　　Comments:
　　Coal output and sales volume increased slightly YoY. In 1Q25, the firm's commercial coal output rose 1.9% YoY and fell 5.4% QoQ to 33.35mnt. Thermal coal and coking coal output rose 2.5% and fell 5.0% YoY (down 5.4% and 6.0% QoQ) to 30.68mnt and 2.67mnt. Sales volume of self-produced coal rose 1.1% YoY and fell 12% QoQ to 32.68mnt.
　　ASP of self-produced coal declined YoY. In 1Q25, ASP of self- produced coal fell 18% YoY and 8.5% QoQ to Rmb492/t, with ASP of thermal coal and coking coal falling 12% and 39% YoY (down 7.0% and 16% QoQ).
　　Cost per tonne of coal continued to decrease, mainly due to the increased utilization of safety and maintenance funds. In 1Q25, the firm's cost per tonne of self-produced coal fell 7.3% YoY and rose 0.5% QoQ to Rmb269.8 for A-shares (excluding transportation costs and port expenses, the cost per tonne fell 10% YoY and 1.0% QoQ to Rmb208.4). Materials cost per tonne fell 12% YoY to Rmb48.52, mainly due to YoY declines in self-operated stripping volume of open- pit mines and the drilling footage of underground mines. Other costs fell 49% YoY to Rmb20.16, as the increased utilization of safety and maintenance funds reduced the balance of special funds.
　　Profit of the coal chemical business improved in 1Q25, with revenue down 1.5% YoY to Rmb4.67bn, cost down 3.4% YoY to Rmb3.81bn, and gross profit up 8.3% to Rmb863mn.
　　Trends to watch
　　The firm released the Action Plan for Enhancing Quality and Efficiency and Focusing on Returns for 2025, proposing efforts to enhance long-term investor returns, improve investors’ satisfaction,　sustain long-term stable cash dividends, and continue to strengthen market cap management. Considering the firm's relatively healthy financial structure, low gearing ratio, and ample cash flow, we believe the firm is able to gradually raise its dividend payout in the medium and long term. We are optimistic about a potential increase in the firm’s shareholder returns.
　　Financials and valuation
　　We maintain our 2025 and 2026 earnings forecasts for A- and H-shares. The A-share is trading at 8.9x 2025e and 8.8x 2026e P/E, and the H-share is trading at 6.8x 2025e and 6.6x 2026e P/E. We maintain our OUTPERFORM ratings and target prices for A- and H-shares, implying 11.1x 2025e and 11.0x 2026e P/E with 25% upside for A-shares, and 7.6x 2025e and 7.4x 2026e P/E with 12% upside for H-shares.
　　Risks
　　Demand recovery disappoints; supply growth beats expectations
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