Main points of investment:
The company will achieve EPS0.52 yuan in 2017, which is in line with our expectations. In 2017, the company achieved operating income of 4.092 billion, an increase of 88.91% over the same period last year. The company achieved a net profit of 61.9542 million yuan in 2017, an increase of 6.44% over the same period last year, while the net profit after deducting non-return was 57.1296 million yuan, an increase of 12.48% over the same period last year. The net cash flow of operating activities for the whole year reached 219 million, an increase of 130.22% over the same period last year. The increase in the company's net profit is less than the increase in operating income, mainly due to the following reasons: on the one hand, the traditional logistics business is a drag on the performance. In 2017, the company's logistics and transportation business realized revenue of 369 million, an increase of 1.69% over the same period last year, and a gross profit of 49.7111 million yuan, a decrease of 27.04% over the same period last year. At the same time, the company's provision for impairment of related assets of traditional logistics and transportation business is about 5 million yuan. On the other hand, the company focused on the North China market in 2017, and because the gas source was far away from the target market, the company obtained a low sales price difference. The gross profit margin of gas sales business such as LNG fell 0.66 percentage points to 5.28%, affecting the sales margin. The LNG market in 2017 showed that the first thing is not weak in the off-season, especially after 2017Q4 entered the peak consumer season, prices soared rapidly, and at the same time, it also faced a state of tight gas sources. 2017Q4 achieved a net profit of 23.11 million, up 70 per cent from the same period last year and 165 per cent from the previous year.
LNG business revenue maintained rapid growth, a growth rate of 110%. Gas sales business such as LNG accounted for 89.09% of the main business revenue. In 2017, the revenue growth rate of this business reached 110.24%, with a gross profit of 198 million, an increase of 86.72% over the same period last year. LNG sales for the whole year were about 1.1 million tons, an increase of about 60% from 670000 tons the previous year. Huaheng Energy, the main body of the business, realized a net profit of 81.8188 million yuan, an increase of 102.63% over the same period last year. Since 2016, Huaheng Energy has relied on China Petroleum & Chemical Corp's upstream gas source and relatively strong supply protection, and has successively developed two LNG receiving stations in Dongjiakou in Qingdao and Beihai in Guangxi. On April 17 this year, the Tianjin LNG project was officially put into commercial operation. With the expansion of the company's market scale in North China, its profitability in this market is expected to be further improved.
The external dependence of domestic natural gas reaches 40%. The demand for LNG is expected to continue to grow. The apparent domestic natural gas consumption in 2017 was 237.3 billion cubic meters, an increase of 15.3% over the same period last year. Natural gas production was 148.7 billion cubic meters, an increase of 8.5 percent over the same period last year; natural gas imports were 92 billion cubic meters, an increase of 27.6 percent over the same period last year, and the degree of external dependence was about 40 percent. Natural gas accounted for 7% of primary energy in 2017 (an increase of 0.6% over the same period last year). Due to the limited domestic natural gas supply and unable to match the demand, if natural gas accounts for 10% of primary energy by 2020, then the external dependence of natural gas will be further increased, while LNG has become a more major source of natural gas imports. In 2017, China imported LNG equivalent to about 50 billion cubic meters. It grew by more than 40% over the same period last year, accounting for about 54% of China's natural gas imports.
Adjust the profit forecast and maintain the "overweight" rating: the company's 18Q1 completed the fixed increase, ensuring future business expansion. We adjusted the company's EPS forecast for 2018-2019 to 0.72 yuan and 1.01 yuan respectively (before the adjustment: 0.85 yuan and 1.0 yuan), and increased the EPS forecast for 2020 to 1.14 yuan, corresponding to 24X, 17x and 15x PE for 18-20, respectively, maintaining the "overweight" rating.
Risk tips: 1) the company's LNG transport volume fell short of expectations; 2) the gross margin of the LNG business narrowed.
