Incidents:
The company released its 2018 annual report: in 2018, the company achieved operating income of HK$1,656 million, a year-on-year decrease of 4.3%; achieved gross profit of HK$817 million, a year-on-year decrease of 5.5%; achieved revenue attributable to joint ventures and joint ventures of HK$977 million, an increase of 15.9% over the previous year; and recorded net profit of HK$1,261 million, with a profit of 50.76 cents per share, an increase of 4.5% over the previous year.
Investment points:
Terminal business to achieve moderate growth in the future
In 2018, the total throughput of the company's seven crude oil terminals (including joint ventures and joint ventures) was 250 million tons, an increase of 6.6% over 2017, and an utilization rate of about 86%. The import volume of the seven crude oil terminals under the company accounts for 50% of the country's total imports, and their handling volume is highly correlated with the country's total imports. It is expected that in the context of China's demand to increase self-production of energy, the growth rate of crude oil imports will slow down somewhat, but it will remain above 5%.
The shortfall in the pipeline business has been released, and pipeline expansion is expected to increase profits
In 2018, the company's pipeline gas transmission volume increased by 13.2% to 4.7 billion square meters, of which the gas transmission volume of liquefied natural gas resources increased by 160% to 1.3 billion square meters, while the gas transmission volume of the Daniudi gas field decreased by 9.3% compared to 2017. Due to the implementation of the new pipeline transportation fee policy in September 2017 and the reduction in the average transportation distance of Sinopec's Qingdao LNG terminal after it was put into operation, the company's natural gas pipeline business was negatively impacted. In 2019, the design production capacity of the Yuji pipeline will increase from 4 billion square meters/year to 5 billion square meters, and in terms of gas sources, the increase in the Dongsheng gas field will also be added to the Daniudi gas field.
LNG transportation business contributes to steady performance
The two projects of the company's LNG transportation business contributed a total profit of HK$86 million in 2018. Since the two ships launched in 2018H1 will contribute profits for the whole year this year, this part of the performance is expected to rise to around HK$100 million this year.
Profit prediction
Driven by the steady growth rate of handling volume, the expansion of the Yuji pipeline, and steady growth in the LNG carrier project, we expect the company's net profit to be 1,346, 1,438, and HK$1,523 million in 19-21. The corresponding EPS is 0.54, 0.58 and HK$0.61 per share, respectively. The company was given 7.5 times PE in '19, a target price of HK$4.05, and a “recommended” rating.
Risk Reminder
Overseas warehousing projects have been reduced in value; pipeline asset divestment pricing has been lower than expected; and the average pipeline distance has been further shortened.