Shaanxi Coal Industry's 2Q26 preliminary results beat expectations, with investment gains and coal prices jointly supporting earnings

Overview

This report reviews Shaanxi Coal Industry's 2Q26 preliminary results from Morgan Stanley. The company expects 1H26 net profit to grow 47-53% year over year to Rmb11.2-11.8bn, implying 2Q26 net profit growth of 148-164%, above Morgan Stanley's expectations. The strong results were mainly driven by higher coal prices in 1H26 and increased investment gains.

Core views

The core view is that Shaanxi Coal Industry's near-term earnings resilience is strong. 1H26 CCI5500 spot thermal coal prices rose 13% year over year, driven by improving coal chemical demand, relatively high year-over-year power plant demand, and lower imports due to high seaborne coal prices. Entering 3Q26, power plant restocking demand, increased daily consumption during the summer peak power-use season, and overall constrained supply are expected to continue supporting thermal coal prices and the company's earnings.

Analysis framework

The report compares the earnings guidance with Morgan Stanley's expectations and analyzes investment gains separately from recurring earnings. It also assesses support for 3Q26 coal prices based on thermal coal prices, power plant and coal chemical demand, imported coal prices, and the pace of mine restarts. For valuation, it uses a residual income model and discloses key assumptions including cost of equity, beta, risk-free rate, equity risk premium, WACC, ROE, and perpetual growth rate.

Methodology notes

• Valuation MethodResidual income model

  Target Price Derivation

  The target price is derived from Morgan Stanley's residual income model using an 8.3% cost of equity; this cost of equity is calculated from a beta of 0.85, a 2.3% risk-free rate, and a 7% equity risk premium.

• Earnings ForecastMorgan Stanley ModelWare

  Financial Metric Definitions

  Unless otherwise stated, the financial metrics in the report are based on the Morgan Stanley ModelWare framework; some consensus data are provided by Refinitiv Estimates.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Shaanxi Coal Industry (601225.SS)

  Research subject; A-share coal company

  Strengths

  Earnings guidance was stronger than expected, investment gains increased, rising coal prices drove earnings improvement, and the target price offers 24% upside from the current price.

  Weaknesses

  Recurring earnings excluding investment gains were broadly in line with expectations; part of the outperformance came from investment gains, while the industry view is Cautious.

  Comparison

  The Overweight rating indicates an expected risk-adjusted total return over the next 12-18 months above the average for the analyst's industry coverage universe.

  Risks

  Coal demand is weaker than expected, domestic realized coal prices are below expectations, or supply recovers faster than demand improves.

Key data

• 1H26 Expected Net ProfitRmb11.2-11.8bnUp 47-53% year over year, above Morgan Stanley's expectations.
• Implied 2Q26 Net ProfitRmb7.0-7.5bnUp 148-164% year over year.
• 1H26 Recurring EarningsRmb9.5-10.0bnUp 32-38% year over year excluding investment gains, broadly in line with Morgan Stanley's estimate.
• CCI5500 Spot Thermal Coal Price+13% YoYIncreased in 1H26, driven by improving demand, reduced imports, and other factors.
• RatingOverweightThe industry view is Cautious.
• Target PriceRmb28.40Implies 24% upside relative to the Rmb22.92 closing price.
• 2026e EPSRmb2.0512/26e EPS as shown in the table.
• 2026e RevenueRmb178,455mn12/26e net revenue as shown in the table.

Impact & implications

If thermal coal prices remain supported in 3Q26 as the report expects, Shaanxi Coal Industry's near-term earnings and market expectations could continue to benefit. However, as the industry view remains Cautious, the investment conclusion is more focused on the company's relative return opportunity than on broad optimism toward the entire coal industry.

Risks

• Coal demand is weaker than expected.
• Domestic realized coal prices are below expectations.
• If investment gains are not sustainable, the quality of the apparent earnings outperformance may be weaker than indicated by net profit growth.
• If the pace of mine restarts exceeds demand growth, it could weaken support for 3Q26 coal prices.

What to watch

• 3Q26 power plant restocking demand and changes in daily consumption during the summer peak.
• The pace of restarts at mines conducting production suspension self-inspections following the Shanxi mine accident.
• The trend in CCI5500 spot thermal coal prices.
• Changes in coal chemical demand, power plant demand, and imported coal prices.
• Whether forward consensus EPS estimates are revised upward.