A research report indicates that SHOUGANG RES (00639) maintains an "Overweight" rating. The company achieved total operating revenue of HK$2.101 billion in H1 2025, down 17% year-on-year; net profit attributable to shareholders reached HK$404 million, declining 52% year-on-year. Considering the impact of downstream demand on coking coal prices, net profit forecasts for 2025-2027 have been revised down to HK$769 million, HK$985 million, and HK$1.261 billion respectively. Based on comparable companies' 2026 P/E ratio of 12.86x and considering the company's continuous improvement in dividend payout ratio, a 2026 valuation of 17x is assigned, corresponding to a target price of HK$3.32.

Key observations include:

The company has solidified its self-production foundation, opened new trading channels, and reshaped its sales volume structure. Price pressure is expected to ease in H2 2025 compared to the same period last year.

In H1 2025, the company's raw coking coal production reached approximately 2.64 million tons (+17.3%), while refined coking coal production was about 1.54 million tons (+19.4%). Total refined coking coal sales in H1 2025 were 2.12 million tons (+58%), including 1.55 million tons from self-produced refined coking coal (+15.7%) and 570,000 tons from traded refined coking coal.

During the first half of 2025, coal market supply increased significantly while demand remained limited, leading to a substantial decline in coking coal prices. The company's comprehensive average selling price (including tax) for refined coking coal dropped 45% year-on-year to RMB 1,067 per ton, aligning with market trends. At the beginning of the second half, futures markets led the recovery, gradually driving spot prices upward. Meanwhile, the slowdown in supply growth is expected to jointly support coking coal price recovery.

Unit costs have been significantly optimized due to economies of scale. The company's raw coking coal production cost in H1 2025 was RMB 328 per ton (+27.6% year-on-year), including cash production costs of RMB 185 per ton (-30.7% year-on-year), depreciation and amortization of RMB 87 per ton (-9.4% year-on-year), and resource tax and other VAT-related taxes of RMB 56 per ton (-37.8% year-on-year). H1 2025 refined coking coal processing costs were RMB 44 per ton (-12% year-on-year).

The company maintains its high dividend strategy with a 100% payout ratio for full year 2024 and 75% for H1 2025 interim dividends. Cash flow continues to support high dividend payout ratios. Cash on hand in H1 2025 was HK$6.88 billion. The company's 2024 annual dividend payout ratio was 100%, with interim dividends of HK$0.06 per share in 2025, representing a 75% payout ratio, continuing to ensure high dividend returns.

Risk factors include macroeconomic performance falling short of expectations and unexpected release of imported coal supplies.