Song Jinggang FCG HKFCG, Chief Financial Officer and Secretary to the Board of Directors, China Shenhua Energy Company Ltd, explains how state-owned enterprises can build a sustainable market value management system through prudent operations and positive shareholder returns.

Value creation and realisation

In recent years, as the State-owned Assets Supervision and Administration Commission (SASAC) of the State Council has increasingly signalled that market value management will be incorporated into the performance appraisal of central state-owned enterprise (SOE) executives, the capital market’s focus on such management has grown steadily. On 24 January 2024, SASAC specifically recommended that central SOE executives pay greater attention to the market performance of their listed subsidiaries, using market-based measures such as share purchases, buybacks and increased cash dividends to convey confidence, stabilise expectations and reward investors. On 15 March of the same year, the China Securities Regulatory Commission issued its Opinions on Strengthening the Supervision of Listed Companies (for Trial Implementation), stressing the need to give higher priority to investors’ interests, and requiring listed companies to adopt proactive and stable cash dividend policies, as well as to set an example as high-quality, large-cap issuers.

Market value is regarded as the extent to which the value of a central SOE’s listed arm is realised in the capital market, reflecting the market’s assessment of its fundamentals and operational capabilities. In recent years, SASAC has shifted its performance evaluation of central SOEs from a ‘scale-oriented’ approach to one that focuses on ‘efficiency and quality’, replacing net profit with return on equity, and profit margins with operating cash flow ratios, reducing scale-related metrics while strengthening the orientation towards value creation.

As a centrally controlled listed company, since its listing in 2005, China Shenhua has consistently focused on its core business and has pursued steady progress. We have continually improved corporate governance and operational quality, achieving better fundamentals and steady market value growth, while making important contributions to energy supply security and market stability. Strengthening market value management helps ensure that value creation is fully reflected in the capital market, in addition to advancing the ‘strong financial system’ strategy and forming a closed-loop management approach to the value creation of state-owned assets.

In the following, I will draw on China Shenhua’s development journey and management practice to share our thinking and hands-on experience in market value management.

Share price and market value

Since 2019, China Shenhua’s A share price has recorded positive growth for six consecutive years. In February 2024, the adjusted price of both its A shares and H shares reached an all-time high since listing, with a combined market capitalisation of around RMB790 billion, ranking fourth among non-financial central SOEs listed on the A share market. Behind these figures lies not mere good fortune, but the combined result of long-term prudent operations and the valuation logic of the capital market.

The foundation of market value management is the robustness of business operations. China Shenhua leverages its integrated coal-electricity-chemical-transport operating model to safeguard asset quality and profitability, while actively engaging in information disclosure and investor relations to help the market better understand the company’s value, thereby achieving mutual benefits for both the enterprise and its shareholders.

It is worth noting that listed central SOEs in the traditional energy sector are generally assigned a relatively low valuation by the market, resulting in the share price often being lower than the issue price, and in some cases even below book value. However, in recent years, China Shenhua has effectively mitigated secondary market volatility through measures such as special dividends, share buybacks and shareholder return programmes, while continuously enhancing return on equity. Coupled with the steady improvement in its fundamentals and the firm backing of the China Energy Investment Corporation, the company’s market value and standing in the eyes of investors has gradually risen, earning recognition from the capital market.

Investor returns

Throughout China Shenhua’s 20-year journey, one question has been at the forefront of our minds – where should our capital be deployed so that it both supports the company’s growth and delivers fair returns to shareholders?

During the company’s high-growth phase, our answer was to prioritise investment in the future. Over the years, we raised approximately RMB90 billion through dual listings in Shanghai and Hong Kong, driving both organic expansion and strategic acquisitions along our integrated coal-electricity-chemical-transport value chain. This enabled us to increase production capacity from 100 million tons to 300 million tons, build a railway network spanning western Shanxi, northern Shaanxi and southern Inner Mongolia, and invest in large-scale, clean coal-fired power plants along mining corridors and coastal areas. It was a period of rapid expansion and self-reinforcing growth.

However, as the pace of industry growth slowed after 2018 and capital expenditure decreased, we gradually shifted our focus to respond more proactively to shareholder expectations. We introduced a series of shareholder return plans, raising the cash dividend payout ratio from no less than 35% to 40% of net profit to at least 50% for 2019–2021, and to at least 60% for 2022–2024, often exceeding these commitments. To date, we have distributed over RMB491.9 billion in cumulative cash dividends. This represents not merely a change in financial figures, but a key example of how we have found a path to successfully negotiating the different stages of our corporate development.

Planning for the future

In managing our market value, China Shenhua has kept one principle in mind – the company must be capable of achieving sustainable development so that investors can enjoy stable, long-term returns. We are fortunate to have the advantages of good coal resources and integrated operations, which not only provide support through diverse businesses such as coal, railways, ports, shipping and power generation, but also offer stable cash flows and a low debt-to-asset ratio. These factors give us the confidence to plan for the future.

We also believe that the future energy system will be diversified and integrated, requiring a strategy of ‘steady progress with careful foundations’ to ensure energy security while actively developing new energy sources. Under the 14th Five-Year Plan, we are leveraging our existing asset structure and resource advantages to increase investment in new energy development. To achieve this, we are pursuing a dual approach of independent development and fund investments – on one hand leveraging our listed platform and financial advantages, and on the other, making full use of land, power unit flexibility and grid access resources to seize opportunities arising from the dual-carbon goals and related policies. This is not merely an industrial transition, but also a practical exercise in long-term investment thinking.

Building a management framework

During the process of exploring market value management, we realised that individual initiatives alone rarely produce lasting results, rather, a systematic approach is essential. Drawing on our own experience, we have developed what I call the ‘11257’ working framework, representing one clear goal and one organisational system, two workplace briefings, five dedicated task forces and seven work aspects. The framework covers three core areas – value creation, value management and value communication. In practice, this framework has been translated into actionable strategies, such as adhering to compliance standards, focusing on shareholder returns, promoting quality improvements and pursuing long-term, mutual benefits.

To ensure the framework is effectively implemented, we set up five dedicated task forces, each responsible for driving execution across different areas. This means that whether for capital operations, investor relations or internal governance, there are clear points of accountability and mechanisms for progress. Over several years of operation, I have found that this systematic, established approach helps convey the company’s value more clearly in the capital markets and fosters long-term investor trust.

Market value management is not only a key measure of operational performance, but also a strategic tool for promoting high-quality development in state-owned enterprises. Looking ahead, China Shenhua will continue to prioritise stable operations, positive shareholder returns and prudent investment, optimise our industrial configuration, enhance sustainable development, and steadily increase corporate value and market recognition, achieving a win-win outcome for the company, its shareholders and society.

Song Jinggang FCG HKFCG, Chief Financial Officer and Secretary to the Board of Directors 

China Shenhua Energy Company Ltd