We have recently communicated with Tianlun Gas to understand the "outline of the New Development Strategy" formulated by the company for the development of 2022-24. This outline includes: (1) high-quality endogenous growth of gas business, strengthening the development of industrial and commercial users, and increasing cooperation with upstream to optimize gas sources; (2) high-quality mergers and acquisitions of gas business, focus on key areas (around provincial capitals, industrial transfer and undertaking areas, gas consumption upgrading areas, gas source producing areas and gathering areas), and obtain high-quality projects (high proportion of gas sales profits, high proportion of industrial and commercial users, great development potential). We expect annual M & An expenditure to reach more than 1 billion yuan (the same as in 2021), but higher than 270 million yuan in 2019 and 570 million yuan in 2020. (3) vigorously develop innovative business, which aims to reach 10% of the company's total revenue by 2024. This business can be divided into two categories: (1) low-carbon energy services, including intelligent applications of integrated natural gas and non-natural gas energy such as photovoltaic, wind, geothermal, biomass, storage, hydrogen, etc.; (2) safety and health services, such as gas safety value-added services; (4) the annual compound growth rate of total retail sales is not less than 25%. This is higher than our forecast growth rate of 20.9%; (5) improve the level of safety management and ESG.
In addition, the company signed a strategic cooperation agreement with Henan Electric Power Company of the State Power Investment Group, covering green and low-carbon business in energy, industry, urban and rural construction, transportation and other industries, as well as the circular development of industrial parks. We expect that the cooperation between the two sides will be realized in 2022, and the company will mainly provide EPC (project procurement and construction) and operation management services.
The new executives provide valuable experience to help the company expand and develop.
Ms. Qin Ling has also been the executive director and general manager of the company since the end of November. She has held management positions in ENN Group and 000826 SZ. She has rich experience in the energy and environmental protection industries, which will help the company expand and develop.
Reiterate the "Buy" rating
We expect that the implementation of the new development strategy, coupled with cooperation with the State Investment Group and the appointment of new executives, will enhance the company's medium-and long-term profit growth. We will wait for the progress to be implemented and adjust the financial forecast in due course. We maintain the target price of HK $10.20 based on discounted cash flow (DCF) analysis, which corresponds to a price-to-earnings ratio of 7.3 times 2022 and 32.5% upside.
Reiterate the "buy" rating.
Risk tips: (1) project delay, (2) tight natural gas supply, (3) reduced connection fee or cancelled.