1H22 core performance meets market expectations
The company announced 1H22 results: revenue of HK $10.16 billion, an increase of 31% over the same period last year, and net profit of HK $1.042 billion, an increase of 34%, corresponding to HK $0.34 per share. The year-on-year increase in the company's performance was mainly due to changes in the fair value of convertible bond embedded derivatives. At the performance meeting, the management calculated that after excluding the changes in the fair value of the company's convertible bonds and the increase in financial costs caused by the Shanghai gas bridge loan, the company's core performance fell 15% year-on-year, mainly because the gross profit of the natural gas sales business declined compared with the same period last year, in line with market expectations.
Natural gas sales business. 1H22 achieved natural gas sales of 7.54 billion square meters, an increase of 4 percent over the same period last year, of which industrial and commercial gas volume increased by 3.1 percent to 4.65 billion square meters. Gross error, the company 1H22 gross error of 0.5 yuan / square, down 0.05 yuan / square, month-on-month increase of 0.02 yuan / square.
In terms of the connection business, 1H22 added 410000 residential users, and the revenue from the connection business increased by 32% to HK $1.195 billion compared with the same period last year.
In terms of renewable energy business, by the end of 1H22, the company has developed 47 zero-carbon smart parks, cumulatively realized distributed photovoltaic contracts 0.78GW, and reached 0.38GW under construction and grid connection.
Trend of development
The operation guidelines of the urban gas sector for the whole year are better than the market pessimistic expectations. At the performance meeting, the management of the company guided the year-on-year growth of natural gas sales by 8-10% (excluding Shanghai Gas), and the retail gas margin was 0.51-0.52 yuan per square meter. Although the guidance on the growth rate of natural gas sales has declined from the beginning of the year, considering the new guidelines, it is still implied that 2H22's natural gas sales achieve double-digit growth, and the gross margin continues to increase compared with the previous year. We believe that the business guidelines of the urban gas sector for the whole year are still better than the market pessimistic expectations.
The renewable energy business is expected to contribute from 2023. The management expects that by the end of 2022, the amount of distributed photovoltaic grid connection and construction is expected to reach 1GW, the number of contracts will reach 1.8GW, and will begin to make a significant contribution to the growth of net profit from 2023. We believe that with the gradual maturity of the renewable energy business, the company's second growth curve is gradually taking shape.
Profit forecast and valuation
Due to the upward cost of the natural gas sales business, we reduced the 2022 Universe net profit by 13.4% to HK $1.481 billion / HK $1.661 billion in 2023. The current share price corresponds to a price-to-earnings ratio of 8.0 times 2023 / 7.1 times earnings. Maintain the outperform industry rating, but due to the lower earnings forecast, we cut our target price by 17.7% to HK $5.10 corresponding to 11.2 times 2022 P / E and 10.0 x 2023 P / E, which is 40.9% higher than the current share price.
Risk
The price of upstream natural gas resources rose higher than expected, and the development of renewable energy business was lower than expected.
