YANKUANG ENERGY GROUP(600188)：PROFIT UNDER PRESSURE AND FELL IN 1H25;UPBEAT ON RECOVERY IN 2H25

Core Viewpoint - Yankuang Energy Group's preannounced earnings for 1H25 indicate a significant decline in net profit, primarily due to falling coal prices and weak demand conditions in the market [1]. Group 1: Earnings Performance - The net profit attributable to shareholders for Yankuang Energy Group is estimated to have fallen about 38% YoY to Rmb4.65 billion, while recurring attributable net profit declined 39% YoY to Rmb4.4 billion under Chinese accounting standards [1]. - The decline in earnings was sharper than expected, attributed to decreasing coal prices and sales volume amid weak demand [1]. Group 2: Supply and Demand Trends - China's raw coal output rose 5.4% YoY in 1H25, indicating high supply growth, but demand remained weak, with thermal power generation down 2.4% YoY and crude steel output down 3.0% YoY [1]. - Domestic coal prices faced pressure, with the average price of Qinhuangdao 5,500kcal thermal coal declining 22% YoY and 19% HoH to Rmb684 per ton in 1H25 [2]. - Commercial coal sales volume fell 4.9% YoY to 64.56 million tons in 1H25, with self-produced coal sales down 1.8% YoY to 62.60 million tons [2]. Group 3: Price Recovery and Future Outlook - Coal prices have rebounded in 2H25, driven by seasonal demand increases, weaker hydropower output, and expectations of supply contraction, with prices rising from Rmb615 per ton at the end of June to Rmb694 per ton as of August 13 [3]. - The expectation for 2H25 is a further contraction in domestic coal supply, which may bring supply and demand closer to balance, supporting continued price increases and potential earnings improvement compared to 2Q25 [4]. Group 4: Financials and Valuation - The earnings forecasts for A-shares and H-shares remain largely unchanged, with A-shares trading at 14.3x 2025e and 12.2x 2026e P/E, while H-shares are at 9.9x 2025e and 8.1x 2026e P/E [4]. - Target prices are maintained at Rmb16.00 for A-shares (17.3x 2025e and 14.7x 2026e P/E with 20% upside) and HK$10.00 for H-shares (10.2x 2025e and 8.3x 2026e P/E with 3% upside) [4].