Morgan Stanley: China Shenhua's profit forecast meets expectations, but weak industry fundamentals may pressure the company's earnings

Morgan Stanley published a research report indicating that China Shenhua (01088.HK) is expected to see its net profit decline by 7% to 16% year-on-year in 2025, reaching between RMB 49.5 billion and RMB 54.5 billion, which is roughly in line with market expectations. Based on this calculation, the bank estimates that the company's net profit for the last quarter will be between RMB 10.4 billion and RMB 15.4 billion, compared to RMB 15.3 billion in the same period of 2024.

Additionally, Morgan Stanley continued to state that the short-term reduction in supply at the mines supports thermal coal prices, and as the Lunar New Year holiday approaches, downstream replenishment demand has slightly rebounded. Domestic coal supply remains sufficient. On the other hand, due to the increase in electricity generation from renewable sources such as hydropower and solar energy, demand may experience a mild decline. Weak industry fundamentals will put pressure on thermal coal prices and China Shenhua's profitability. However, ongoing cost control and expected production growth from asset injections will provide greater stability for profits.

The bank set a target price of HKD 44.1 for China Shenhua's H shares, with a rating of "Overweight."