Recurrent profit growth of 14% in 2021; maintain "buy"
Beijing Holdings reported that revenue rose 18 per cent year-on-year to HK $80.4 billion and recurrent profit rose 14 per cent year-on-year to HK $8.6 billion, higher than Huatai's forecast of HK $8.4 billion. Major operating updates include: 1) Beijing gas sales increased by 5% compared with the same period last year; 2) the gas output of Beijing Pipeline Company was 54.3 billion cubic meters, up 10% from the same period last year; 3) China Gas's net profit contribution fell 1.5% year-on-year to HK $2.2 billion; 4) the net profit of the water business was flat. In view of the change in natural gas revenue and the change in the company's investment income in China Gas, Rosneft VCNG project and Beijing Water Control Group (371GWG), we expect recurrent profit of HK $9.9 billion / 10.9 billion / 11.8 billion (previous value: HK $9.3 billion / 10.1 billion /-HK $) and BPS of HK $82.7HK 89.2 HK for 2022-2024. Taking into account the diversification of the company's business and steady earnings growth, we raise the target price to HK $41.33 based on 0.5 times the 2022 forecast PB (basically in line with the average PB over the past three years). Maintain "buy".
Total natural gas sales increase by 5% in 2021 compared with the same period last year
Beijing gas 2021 total natural gas sales rose 5 per cent to 18.9 billion cubic meters compared with the same period last year, while gas sales in Beijing increased by 2 per cent to 16.9 billion cubic meters, and natural gas demand leveled off. We expect Beijing gas sales to grow by 3% in 2022, and the rapid rise in costs may lead to a narrowing of the gross margin.
In addition, China Gas's net profit contribution fell 1.5 per cent year-on-year to HK $2.2 billion due to a gross margin in sales and pressure on new connections.
Beijing Pipeline contributes stable income
In 2021, the gas output of the National Pipeline Network Beijing Pipeline Company increased by 10 per cent year-on-year to 54.3 billion cubic meters, and its contribution to the net profit of Beijing Holdings increased by 19 per cent year-on-year to HK $1.6 billion. Beijing Holdings holds a 40% stake in Beijing Pipeline, and we expect Beijing Pipeline to operate stably and contribute stable earnings to Beijing Holdings.
Dividend payout is expected to show an upward trend in the long run.
Beijing Holdings plans to pay a full-year dividend of HK $1.25 per share (2020: HK $1.14 per share) with a dividend yield of 18% (2020: 19%) and a dividend yield of 5%. We maintain an optimistic view of Beijing Holdings and expect its dividend to show an upward trend in the long run. Taking into account the diversification of the company's business and steady earnings growth, we have obtained a new target price of HK $41.33 based on the 0.5x 2022 forecast PB (the previous target price is HK $41.12x, based on the 0.57x 2021 forecast PB). Our target PB multiple is basically consistent with the stock's three-year historical PB average of 0.49 times.
Risk tips: 1) the growth of gas sales in Beijing is lower than expected; 2) the profit contribution of China Gas and overseas projects is lower than expected.
