Key points of investment
The 2019H1 results are basically in line with market expectations. The company achieved revenue of HK$748 million in 2019H1, a year-on-year decrease of 11.0%, and net profit of shareholders of $727 million, a slight decrease of 3.8% from the previous year. The company's 2019 H1 revenue side fell slightly short of market expectations, mainly due to the decline in gas transmission volume in the Yuji pipeline business and the depreciation of the RMB exchange rate; the profit side was basically in line with market expectations, mainly because the crude oil business performed better-than-expected to offset the decline in the pipeline business. The company paid an interim dividend of HK8 cents per share (2018H1:5 HK cents), with a dividend rate of 27.4% (2018H1:16.4%).
The performance of the Yuji Pipeline declined due to factors such as the commissioning of the new pipeline. The company's Yuji Pipeline in 2019H1 achieved revenue of HK$4.3 billion, a year-on-year decrease of 13.8%; operating profit of HK$160 million, a year-on-year decrease of 21.0%; piping volume of 1,924 million square meters, a year-on-year decrease of 10.3%; and an average piping fee of HK$0.22/square (2018H1:0.23 HKD/square). The decline in the performance of the Yuji pipeline is mainly due to (1) after Sinopec's “Oancang” gas pipeline phase I project was put into operation at the end of last year, and some LNG imports were transferred from Qingdao to the Tianjin receiving station, which reduced the gas volume of the Yuji pipeline by about 100 million square meters over the same period; (2) the decline in gas volume extracted from CNPC, and 68 million square meters for 2019H1 extraction (2018H 1:150 million square meters); (3) labor costs, etc. There were delays in the same period last year, an increase this year; (4) and the impact of the depreciation of the RMB exchange rate.
The crude oil terminal business performed well. (1) The revenue and profit of the subsidiary Huade Shihua were stable after deducting the influence of the exchange rate; (2) Zhanjiang Wharf was approved due to preferential tax rates and the impact of tax rebates in the first half of the year; (3) Qingdao Terminal's market share increased by 6.0% (12.3% increase excluding exchange rate effects); (4) Rizhao Wharf achieved a -13.4% decline in investment income (excluding exchange rate effects, -7.5%), mainly because Rizhao acquired a new berth last year, which brought about certain financial expenses and depreciation.
Our view: According to the company's latest situation, we reduced the company's revenue for 2019-2020 by 8.9% and 8.2% respectively to HK$1.52 billion and HK$1.6 billion, and introduced a 2021 revenue forecast of HK$1.62 billion; we also slightly reduced the company's net profit for 2019-2020 by 0.7% and 0.9%, respectively, and introduced a profit forecast of HK$1.55 billion for 2021. The 2019 PB corresponding to the stock price on September 6, 2019 was 0.62 times, maintaining the “buy” rating. Due to the uncertainty of the Yuji Pipeline divestment method, the target price was lowered from HK$4.46 to HK$4.31, corresponding to 0.85x PB in 2019.
Risk warning: 1. Pipeline divestment pricing falls short of expectations; 2. Shandong refining demand is declining; 3. Asset impairment of Indonesian projects; 4. Dividend payments fall short of expectations