Core Viewpoint - Shougang Fushan Resources reported a 38% year-on-year decline in attributable net profit to HK$404 million for 1H25, which was better than expected due to a milder decline in earnings driven by a larger-than-anticipated reduction in costs despite falling coal prices [1]. Production and Sales - Raw and clean coking coal output increased by 17% and 19% year-on-year to 2.64 million tons and 1.54 million tons, respectively, with 100% of raw coal being washed. Clean coking coal sales volume rose 16% year-on-year to 1.55 million tons, primarily due to a temporary production suspension at Xingwu Coal Mine in 1H24 [1][2]. Price Trends - The average selling price of clean coking coal fell 45% year-on-year to Rmb1,067 per ton in 1H25. This decline was steeper than the 36% and 39% year-on-year decreases in Shanxi main coking coal prices at Jingtang Port and Shanxi Liulin No.9 coking coal, respectively. The price drop was attributed to a shift in coal quality following the full mining of lower-group coal at Xingwu Coal Mine [2]. Cost Management - The unit production cost of raw coking coal decreased by 28% year-on-year to Rmb328 per ton in 1H25. Cash costs fell 32% year-on-year to Rmb241 per ton, while cash costs excluding uncontrollable expenses declined 31% year-on-year to Rmb185 per ton [3]. Cash Flow and Dividends - Net operating cash inflow decreased by Rmb727 million year-on-year to Rmb453 million in 1H25. As of the end of June, the company held available free funds of HK$9.48 billion (HK$8.41 billion excluding the 2024 final dividend). The firm plans to pay an interim dividend of HK$0.06 per share for 1H25, resulting in a payout ratio of 76% and a dividend yield of approximately 2.2% based on the current share price [4]. Market Outlook - Coking coal prices rebounded in 3Q25, with a cautiously optimistic outlook for coking coal fundamentals in 2H25. Prices have risen since July, supported by tightening supply in certain regions. The price of Liulin No.9 coking coal increased from Rmb968 per ton in June to Rmb1,278 per ton by August 28, with a quarterly average of Rmb1,209 per ton in 3Q25, up 10% compared to 2Q25 [5]. Future Projections - The upside for coking coal prices will depend on domestic supply contractions, influenced by expectations of weaker demand amid sluggish steel consumption and declining profit margins. Coking coal imports, particularly from Mongolia, may see marginal improvement as coal prices recover [5]. Financial Adjustments - The company has lowered its coal price and cost assumptions, cutting its 2025 and 2026 earnings forecasts by 4% to HK$892 million and HK$978 million, respectively. The stock is currently trading at 15.8x and 14.4x 2025e and 2026e P/E ratios. The company maintains an OUTPERFORM rating with a target price of HK$3.00, implying 17.1x and 15.6x 2025e and 2026e P/E ratios and offering an 8% upside [5].