Sitting on the geographical advantage of Beijing, Tianjin and Hebei, epitaxial mergers and acquisitions accelerate the national layout. Based in the Beijing-Tianjin-Hebei region, the company has expanded its business territory to Hubei, Anhui and Liaoning through a series of acquisitions in recent years. As of 2019H1, the natural gas transmission and distribution network has exceeded 5000 kilometers, covering more than 17 million residents and tens of thousands of industrial and commercial users.
In recent years, the company's gas sales have increased rapidly, the gas consumption in various operating regions has increased significantly, and the scale of national natural gas companies is beginning to show. The total natural gas sales of 2019H1 Company is 665 million square meters, which increased by 35.77% compared with the same period last year under the influence of Fuyang gas consolidation table. Of these, the Beijing-Tianjin-Hebei region sold 470 million square meters of natural gas, an increase of 14.25 percent over the same period last year; Jingzhou and Fuyang increased by 14.7 percent and 17.6 percent respectively over the same period last year, and gas sales in the three places were all higher than the 10.8 percent growth rate of 2019H1 national natural gas consumption. Profitability is at a turning point. The price increase in the upstream of 2019Q1 remains strong, but the volume of contracts signed between the company and the upstream has increased, and the overall profitability has improved quarter by quarter. 2019Q2's single-quarter gross profit margin has reversed its downward trend and increased 4.3pct to 39.5% compared with the same period last year.
There is still a lot of room for gas sales growth, and the price profit is free to meet the inflection point. Beijing-Tianjin-Hebei region: the conversion of coal to gas is still in the critical stage, and the focus has gradually shifted from rural areas to cities, while the new increments of business users who are relatively lagging behind in township, county and other areas are also expected to accelerate the release. It is estimated that the new gas sales in Beijing, Tianjin and Hebei will reach 260 million or 140 million square meters from 2019 to 2020. Central region: the company acquired projects in Jingzhou, Hubei Province and Fuyang, Anhui Province at the end of 2016 and 2018 respectively. The high population and relatively low gas coverage of the two areas are also strong guarantees for future growth. Based on the gas coverage of 40% Mel and 60% planned by the two places in 2021, Fuyang and Jingzhou are expected to maintain a combined annual increase of 104 million square meters in the future. In summary, the company's gas volume increased by 360 million and 240 million square meters respectively from 2019 to 2020, and is expected to maintain a compound growth rate of about 30%.
With the reduction of cost pressure and the promotion of terminal price, the gross difference is expected to be significantly repaired. Under the continuous improvement of domestic gas supply and demand, the price of Q1-Q3 marketed gas has also dropped by 10.6% compared with the same period last year, so 2019 may become a high inflection point for the company's cost, and the company is expected to continue to improve in terms of contract volume and contract price in the future.
In terms of terminal prices, after the price rise in the upper reaches of 2018, the maximum industrial and commercial terminal gas prices of Fuyang, Jingzhou and Hebei Development and Reform Commission in the peak season have all risen by about 0.29-0.50 yuan per square meter, which is basically the same as that measured by Petrochina Company Limited. Therefore, it is expected that the price difference between industry and commerce in 2019 is expected to remain relatively reasonable, while in 2020 and beyond, with the gradual decrease of non-protection pressure. There is still some room for recovery in the gross margin of industry and commerce.
The high dividend is still expected to continue, and the construction of the receiving station will promote the profit of the gas source. The company's dividend yield of 5.5% in 2018 is among the highest in A-share and H-share urban fuel companies, while the company's capital expenditure is expected to remain basically stable in 2019, and high dividends are expected to remain. In addition, in the long run, the company's LNG receiving station has started construction in 2018, with a planned turnover capacity of 2.6 million tons (about 3.6 billion square meters). After it is put into production, only the trading business is expected to achieve a net profit of 1 billion yuan, and there is huge room for profit improvement in the future.
Profit forecast, valuation and investment rating. The continued increase in the profit share of the company's gas sales business is expected to lead to an improvement in valuation. We expect the company to achieve a net profit of 12.3 and 1.4 billion yuan from 2019 to 2020, an increase of 23% and 13% over the same period last year, corresponding to 8.5x and 7.5x PE. According to the business gross profit contribution of Hong Kong stock leaders and the corresponding valuation, we believe that the proportion of gas sales gross margin of the company in 2019-2020 has increased from less than 20% in the previous year to 20% in the 40% range. Therefore, through segment valuation, we value the company's 2019 target at 11 times, corresponding to the target price of RMB9.65, and give it a "strong push" rating for the first time.
Risk hints: the growth of regional gas demand is not as expected; the ventilation volume of new users is not as expected; the upstream price increase is higher than expected; the downstream price transfer range is not as expected.
