1Q23 performance we expect
The company announced 1Q23 results: revenue of 6.56 billion yuan, +3.6% year on year; net profit of the mother was 840 million yuan, -10.4% year on year, corresponding to a profit of 0.2 yuan per share, in line with our expectations. The company stated that the main reason for the year-on-year decline in performance was 1) the decline in the unilateral gross profit of natural gas due to factors such as lower gas pipeline prices and the reversal of consumer prices, 2) gas sales in 1Q23 fell 6.1% year-on-year due to warmer weather.
In terms of natural gas business, 1Q23's gas transmission volume was 1.67 billion square meters, -2.5% year on year, of which gas sales volume was 1.43 billion square meters, -6.1% year on year; in the power generation business, 1Q23 company's feed-in electricity volume was 4016 GWh, +3.8% year-on-year, of which the market electricity accounted for 32.1%, and the feed-in electricity price (excluding tax) was 0.44 yuan/kWh.
Development trends
The gross profit recovery of natural gas business units awaits an increase in the price adjustment ratio of private users. We estimate that the profit situation of the company's natural gas business in 1Q23 is likely to remain only marginal due to a year-on-year decline in gas volume/gross margin. Looking ahead, considering that the company's Shijiazhuang and other urban fuel projects have already issued price transmission announcements for private users, we judge that the company is expected to improve its own profitability by moderately transmitting the pressure brought about by rising upstream costs to residential users.
The profit of the Changxie Association is expected to be realized gradually after the LNG terminal is put into operation. According to the company's official website, the first phase of the Tangshan LNG terminal invested by the company has already obtained the final approval procedure before LNG arrives ashore, and we expect it to be put into operation within this year. Considering that the 1 million tons/year LNG Changxie that the company has signed has a strong cost advantage over current stock, we believe that as the Tangshan LNG project is put into operation, the company's supporting LNG Changxie is expected to provide a more positive performance contribution to the company. According to estimates of 400,000 to 500,000 tons of LNG imported by the company in '23, we expect LNG Changxie to increase the company's profit by about 5-6 billion yuan in '23.
Saving assets helps increase the medium- to long-term returns of the company's new energy projects. We believe that with the increase in the installed capacity of domestic wind power plants, the importance of pumping power plants in the peak adjustment of power grids will become more apparent. The company holds 20% of the shares in Fengning Power Station (the company expects its installation to reach 3.6 GW by the end of 2023), and added 6.4 GW of savings agreement capacity in 22. We are optimistic that the company's savings project will drive a steady increase in the return rate of operating new energy projects after the company's savings projects are gradually put into operation.
Profit forecasting and valuation
The 23/24 earnings forecast remains unchanged. The current A-share price corresponds to 15.1x/12.4xP/E in 23/24. The current H share price corresponds to 4.8x/3.8x P/E in 23/24. A-shares continued to outperform industry ratings, but due to the downward shift in the industry valuation center, we lowered our target price by 11.1% to 12 yuan, corresponding to 20.0x/16.3x P/E in 23/24, which has an upward margin of 31.9% compared to the current stock price. H shares continued to outperform industry ratings and the target price of HK$4.00, corresponding to 5.6x/4.5x P/E in 23/24, with an upward margin of 16.6% compared to the current stock price.
risks
Natural gas prices have fluctuated greatly, and price transmission has been lower than expected.