Key Takeaways
Guoyuan International gave Shougang Resources Ltd. (00639) a “Buy” rating and a HK$3.18 target price, citing a sharp increase in first-quarter production and significant cost reductions that position the coal producer to capitalize on strengthening prices.
"The results of fine-tuned management are significant," Guoyuan International said in a May 13 report, noting that the target price represents a 22% potential upside. The bank's valuation corresponds to a price-to-earnings ratio of 16.5 times for 2026 and 15 times for 2027.
The bullish call is supported by a 39% year-over-year surge in clean coking coal output to 960,000 metric tons in the first quarter of 2026. This follows a year in which the company cut its unit production costs by 13% to 373 yuan per ton, aided by increased scale and lower resource taxes. Sales volumes of its self-produced clean coking coal rose 17% to 980,000 tons in the first quarter.
Shougang's performance comes as the market for coking coal, a crucial ingredient for steelmaking, shows signs of improvement. Guoyuan expects domestic supply in China to remain flat or decline amid stricter safety and production regulations. Meanwhile, three recent rounds of price hikes for coke have been implemented, supporting the price of its raw material.
Guoyuan's report highlighted Shougang's successful cost-control measures in 2025, which benefited from a 6% increase in raw coal production, lower material consumption, and reduced taxes linked to coal prices. For 2026, the company is targeting a further cost reduction of 3.5% to 10% through measures including workforce reduction and more transparent material procurement.
The company's three mines are now fully operational. In the first quarter, raw coking coal output climbed 22% to 1.38 million tons. While the average selling price of 1,170 yuan per ton was down 3% from the prior year, it marked a recovery from the full-year 2025 average of 1,066 yuan.
The positive operational data and analyst upgrade may attract new investor interest to Shougang, which has a policy of high dividend payouts, distributing 97% of its profits in 2025. Investors will be watching to see if the combination of higher volumes and a supportive price environment can drive improved profitability through 2026.
This article is for informational purposes only and does not constitute investment advice.
