1H22 deducts 11% increase in non-net profit; maintains "buy" rating
Beijing Holdings reported interim results on August 31, with revenue up 14 per cent year-on-year to HK $46 billion, deducting non-net profit up 11 per cent year-on-year to HK $5.5 billion, or 55 per cent of our previous full-year forecast.
Among them: 1) the gas sales of Beijing Gas increased by 6% compared with the same period last year; 2) the gas output of Beijing Pipeline Company increased by 19% compared with the same period last year; 3) the net profit contribution of China Gas (384 HK) decreased by 36.5% compared with the same period last year; 4) the net profit contribution of Beijing Water Control HK decreased by 72% compared with the same period last year. In view of the change in natural gas revenue and the change in the company's investment income in China Gas, Rosneft VCNG and Beijing Water Control, we expect 2022 Universe 2023 to deduct non-net profit of HK $10.2 billion / 11.2 billion / 12.1 billion (previous value: HK $9.9 billion / 10.9 billion / 11.8 billion) and BVPS of HK $82.89 lead 90.18Comp97.92 in 2024. We lowered the target price to HK $37.30, based on 0.45x 2022 forecast PB (previous value: HK $41.33x, based on 0.5x 2022 forecast PB), slightly higher than the company's three-year historical PB average (0.43x), mainly due to the company's diversification and steady earnings growth. Maintain a "buy" rating.
1H22 total gas sales in Beijing increased by 6%
Total 1H22 natural gas sales in Beijing rose 6 per cent year-on-year to 10.9 billion square meters, while gas sales in Beijing increased 6 per cent to 94 billion square meters. We have raised our forecast for the growth rate of Beijing gas sales in 2022 to 6% (previous value: 3%), while the increase in sales prices will contribute to the recovery of gas sales margin for the whole year. China Gas's 1H22 net profit contribution fell 36.5% year-on-year to HK $800 million, mainly because China Gas faced challenges such as the pressure on the gross margin of sales, the slowdown in the growth rate of new connections and the decline in profitability of the connection business.
Gas flow of 1H22 pipeline increases by 19%
The 1H22 gas output of the State Pipeline Beijing Pipeline Company increased by 19% year-on-year to 31.8 billion cubic meters, and its contribution to Beijing Holdings' net profit increased by 21% year-on-year to HK $1.1 billion. We have raised the gas output growth rate of Beijing Pipeline Company to 19% year-on-year growth in 2022 (previous value: 5% year-on-year growth). Beijing Holdings holds a 40% stake in Beijing Pipeline, and we expect Beijing Pipeline to operate steadily and contribute stable revenue to the company.
There is room for the dividend payout rate to rise.
BEHL intends to pay an interim dividend of HK $0.50 per share (1H21: HK $0.40 per share), corresponding to a dividend yield of 12.5 per cent (1H21VO8 per cent). We maintain our optimistic view of BEHL and believe that there is still room for the dividend payout rate to rise throughout the year. The average PB of the stock over the past three years is 0.43 times. Taking into account the diversification of the company's business and steady earnings growth, we give a 0.45x 2022 forecast PB and arrive at a new target price of HK $37.30m (the previous target price is HK $41.33based on the 0.5x 2022 forecast PB).
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.