Performance review

1H22 performance is in line with our expectations

The company announced 1H22 results: revenue of HK $45.99 billion, an increase of 13.9% over the same period last year; core profit excluding one-time factors of HK $5.47 billion, up 10.8% over the same period last year; and net profit of HK $5.03 billion, down 20.3% from the same period last year, corresponding to HK $3.99 per share. The company's 1H22 performance is in line with our expectations. The company plans to pay an interim dividend of HK $0.50 per share, an increase of 20% over the same period last year.

1H22 Beijing Gas achieved natural gas sales of 108.8 billion square meters, an increase of 6.3 percent over the same period last year, of which natural gas sales in Beijing reached 9.36 billion square meters, an increase of 5.5 percent over the same period last year.

In terms of segment performance, 1H22's pipeline gas sales business realized operating profit of 2.13 billion Hong Kong dollars, up 13.6 percent over the same period last year; beer business realized operating profit of 597 million Hong Kong dollars, up 22.0 percent over the same period last year; and solid waste disposal business realized operating profit of 893 million Hong Kong dollars, basically the same as the same period last year.

From the perspective of the joint venture company, benefiting from the sharp rise in oil prices, Rosneft VCNG project contributed a net profit of HK $859 million, a sharp increase of 202.1% over the same period last year; benefiting from the increase in gas delivery, Beijing Pipeline Company contributed a net profit of HK $1.15 billion, an increase of 21% over the same period last year; in addition, China Gas / Beijing Water Control contributed a net profit of HK $806 million.

Trend of development

The Nangang project is progressing smoothly and the new business is gradually laid out. By the end of the reporting period, Tianjin Nangang LNG is progressing smoothly, and the overall completion of the four storage tanks and receiving stations in the first phase is more than 85%. We believe that the Nangang project is expected to contribute to a significant profit increase for the company after it is put into production. In addition, the company also began to gradually expand integrated energy and new energy projects. 1H22's comprehensive energy business revenue reached 374 million Hong Kong dollars, an increase of 29.8% over the same period last year. We judge that the gradual landing of integrated energy and other emerging businesses is also expected to bring new profit growth points for the company.

Dividend growth is expected to help the company's value repair. At the results meeting, the company's management maintained the guidance that the dividend payout ratio is expected to increase further in 2022. Considering that the company's valuation is still low, we believe that the dividend increase is expected to help the company's value to be further repaired.

Profit forecast and valuation

The profit forecasts for 2022 and 2023 will remain basically unchanged. The current share price corresponds to a price-to-earnings ratio of 3.4 times 2023 / 3.0 times earnings. Maintain an outperform industry rating and a target price of HK $35.10, corresponding to 5.2 times 2022 earnings and 4.4 times 2023 earnings, with 50.0 per cent upside from the current share price.

Risk.

Dividend growth was lower than expected, and international oil and gas prices fluctuated sharply.