The annual performance falls short of our expectations and maintains the "buy"
Tianlun Gas announcement 2021 results: annual revenue / core profit of 7.65 billion / 915 million yuan (up 19% of the same period last year), core profit is slightly lower than Huatai's forecast of 987 million yuan. The main updates in 2021 are as follows: 1) Retail gas volume increased 29% year on year; 2) 639000 newly connected residential users; 3) sales margin narrowed to 0.49 yuan per cubic meter; 4) township energy construction through household photovoltaic layout. Tianlun declared a final dividend of 0.28 yuan per share, corresponding to a dividend payout rate of 30.8%. Taking into account the narrowing of the company's gross margin on sales, we expect its core profit for 2022-2024 to be RMB 1 billion / 1.15 billion / 1.31 billion (previous value: RMB 1.15 billion / 13.1 billion / -), and its core EPS is RMB 1.00 pound 1.15 shock 1.31 yuan, with a compound annual growth rate of 13%. We lowered the target price to HK $8.67, corresponding to 7 times the forecast PE for 2022, which is 7.7 times lower than the average PE in the past three years, to reflect the increased uncertainty of upstream prices under the tight balance between natural gas supply and demand. Maintain "buy".
In 2021, retail volume increased by 29% compared with the same period last year, and the gross margin of sales narrowed.
In 2021, the revenue of urban gas sales increased by 34% compared with the same period last year, and the operating profit margin was 10.2% (2020: 12.6%). Tianlun's urban gas sales (excluding trade gas volume) increased by 29% year-on-year to 1.57 billion cubic meters, of which urban gas sales for residents / industrial and commercial / vehicle users increased by 19%, 34% and 17%.
Due to the surge in upstream gas prices and the lag of pipeline gas price transmission, the gross margin of sales decreased to 0.49 yuan / cubic meter in 2021 (2020: 0.56 yuan / cubic meter). We expect the company's urban gas sales to increase by 25% in 2022 compared with the same period last year, but the gross sales margin narrowed slightly.
The goal of changing coal to gas is about to be completed, and the energy construction of villages and towns sets sail.
In 2021, Tianlun Gas will connect 639000 new residential users (2020: 832000), including 347000 coal to gas (567000 in 2020). The number of coal to gas users has decreased compared with last year, mainly due to the impact of rain disasters in Henan Province and the epidemic situation of COVID-19. Revenue from the company's connection business fell 13% in 2021 from a year earlier, while operating profit margins were flat at 40%. The business goal of changing coal to gas has been basically completed, and the company will expand the layout of township energy business. We expect Tianlun to develop 300MW's household rooftop distributed photovoltaic in 2022 and 1GW in total from 2022 to 2025.
The valuation is attractive and sales are expected to grow steadily in the future.
Taking into account the narrowing of Tianlun sales gas margin, our new target price of HK $8.67 is based on 7 times 2022 forecast PE (previous value: HK $9.46, corresponding to 8 times 2021 forecast PE), which is slightly lower than Tianlun's historical PE average of the past three years (7.7 times), to reflect the increased uncertainty of upstream prices under the tight balance between natural gas supply and demand. The company's current share price corresponds to a forecast PE of 4.3x for 2022, and we find its valuation attractive given the company's sound operating results. Tianlun plans to pay a final dividend of 0.28 yuan per share, corresponding to a dividend yield of 30.8% and 6.7% for 2021.
Risk hint: the growth rate of gas sales is lower than we expected, the gross margin of gas sales fell more than expected, and the progress of residential photovoltaic is not as expected.