J.P. Morgan: Daqin Railway’s third-quarter profit falls; fourth-quarter freight volume expected to recover quarter on quarter

Why did third-quarter profit fall more than freight volume?

In the third quarter of 2026, the Daqin Line carried 94 million tonnes of freight, down 3% year on year; volume fell 5% in September. Safety inspections at Shanxi coal mines affected coal shipments and were the main reason for the pressure on volumes.
Over the same period, the company’s revenue fell 5.7% year on year, while total costs fell only 1.2%. Gross margin declined to 7.6% from 12.3% a year earlier; net profit attributable to shareholders fell to 1.569 billion yuan, down 25.6% year on year.
JPMorgan believes the ongoing logistics contracting services are less profitable than core rail transportation and also weigh on the overall margin.

JPMorgan expects policy-driven coal mine restarts, winter restocking and the restoration of capacity after maintenance to jointly support a quarter-on-quarter rebound in fourth-quarter coal shipments.
Voluntary production stoppages at Shanxi coal mines, safety inspections and a slower-than-expected resumption of production previously constrained supply. On 16 October, the National Development and Reform Commission, the National Energy Administration and other authorities held a meeting on securing Shanxi coal supplies. The bank says about seventy percent of Daqin Railway’s coal comes from Shanxi, so increased supply benefits the company.
The bank also believes tight coal supply and stronger prices could ease pressure to offer further freight-rate discounts, supporting margin stabilization. Higher coal prices improve bargaining conditions but do not necessarily translate directly into higher volumes.

JPMorgan expects net profit attributable to shareholders of approximately 7 billion yuan in 2026, up 19% year on year. An important factor is the low comparison base created by a loss in the fourth quarter of 2025. Actual attributable net profit for the first three quarters was 5.824 billion yuan, down 6.4% year on year.
The improvement in cash flow has been uneven: operating cash flow for the first three quarters of 2026 was 9.631 billion yuan, up 168.4% year on year; but in the third quarter alone it was 2.439 billion yuan, down 41.5% year on year.

JPMorgan cut its earnings forecasts for 2026–2028 by approximately 5% and lowered its discounted-cash-flow-based price target for December 2027 from 6.30 yuan to 6.00 yuan, while maintaining its Overweight rating.
The bank notes that the stock trades at approximately 0.6 times book value and expects dividend yields of 3.6%–4.1% for 2026–2028. The company also has a buyback of 400 million–500 million yuan. Weaker-than-expected growth in coal transport volume, increased coal imports and a faster energy transition are among the downside risks cited by the bank.