China Shenhua’s third-quarter net profit rises 3%: coal profit per tonne improves, while power-generation profit comes under pressure
Higher selling prices and lower unit costs for self-produced coal lifted gross profit per tonne by 32% year on year. However, power-generation costs rose far more than electricity prices, halving gross profit and leaving quarterly net profit slightly below Citi’s forecast.
Original source：Citi ResearchFirst published on Unhidea：Original source date：
Key takeaway
Improved profitability in China Shenhua’s coal business was partly offset by rising costs in its power-generation business. Citi maintained its Buy rating.
How did third-quarter results compare with Citi’s forecast?
China Shenhua’s net profit for the first three quarters of 2026 was 47.3 billion yuan, up 2% year on year and equivalent to 75% of Bloomberg’s full-year market consensus and 76% of Citi’s full-year forecast, respectively. Gross profit for the first three quarters was approximately 87 billion yuan, up 5% year on year.
On that basis, third-quarter net profit was calculated at 16.3 billion yuan, up 3% year on year and slightly below Citi’s forecast. Citi attributed the shortfall mainly to lower-than-expected gross profit in power generation and higher-than-expected selling, general and administrative expenses.
Why did gross profit per tonne rise sharply despite lower coal sales?
Third-quarter coal sales were 160 million tonnes, down 3% year on year, including 132 million tonnes of self-produced coal, also down 3%.
The average selling price of self-produced coal rose 10% year on year to 417 yuan per tonne, while total unit costs, including transportation, fell 3% to 231 yuan per tonne. This lifted gross profit per tonne of self-produced coal by 32% year on year to 185 yuan.
The coal business generated third-quarter gross profit of 18.1 billion yuan, accounting for 60% of the company’s total gross profit, up 3 percentage points from a year earlier.
Why did power generation weigh on overall profit?
Third-quarter electricity sales were 76 billion kilowatt-hours, down 3% year on year. The average electricity price rose 3% to 371 yuan per megawatt-hour, but unit power-generation costs rose 24% to 340 yuan per megawatt-hour.
As costs rose faster than electricity prices, the power-generation gross margin fell 16 percentage points year on year to 8%. Gross profit fell 55% year on year to 3 billion yuan, and its share of the company’s total gross profit declined from 23% to 10%.
Among other businesses, railway gross profit rose 9% year on year to 4.3 billion yuan in the third quarter. Coal-chemicals gross profit was 1.8 billion yuan, accounting for 6% of the company’s total gross profit.
How do cash flow and valuation support Citi’s assessment?
Third-quarter operating cash flow was 38 billion yuan, up 60% year on year. After capital expenditure rose 117% year on year to 17.6 billion yuan, free cash flow still reached approximately 20 billion yuan, up 30% year on year. The net debt ratio at the end of the first three quarters was 19%, below the 21% at the end of the first half.
Citi maintained its Buy rating on the H shares and its target price of 54.70 Hong Kong dollars. Based on the closing price of 39.62 Hong Kong dollars on 23 October 2026, the target implies 38.1% upside. The bank valued each business using 2026 EV/EBITDA and deducted net debt and minority interests.
Downside risks to the target price identified by Citi include lower-than-expected coal prices, higher-than-expected production costs, lower-than-expected electricity prices and a weaker dividend yield.
