Event

Baichuan Energy released its third quarter report in 2019

Baichuan Energy reported in the third quarter of 2019 that the company achieved operating income of 3.637 billion yuan in the first three quarters, an increase of 546 million yuan over the same period last year, an increase of 17.67% over the same period last year, and a net profit of 657 million yuan, down 8.71% from the same period last year. During the reporting period, the company achieved earnings per share of 0.46 yuan, with a weighted average ROE of 14.91%, down 2.78% from the same period last year. In the third quarter, the company achieved operating income of 841 million yuan, an increase of 3.96% over the same period last year, and a net profit of 144 million yuan, a decrease of 34.13% over the same period last year.

Brief comment

The decline in the connecting business and the increase in the average income tax rate led to a decline in third-quarter results compared with the same period last year. In the third quarter of this year, the company's home net profit decreased by 34.13% compared with the same period last year. We believe that there are two reasons. First, from the revenue side, the gas sales sector still achieved a relatively high growth rate, but because the transformation of village access within the company's business coverage has been basically completed, the number of connected households has declined significantly in the third quarter. as a result, its gross profit margin fell 6.9 percentage points in the third quarter compared with the same period last year. Second, due to the large settlement of coal-to-gas projects in the same period of 18 years in the third quarter, there are more tax breaks, while the settlement amount of coal-to-gas projects is relatively small this year, resulting in an increase in the company's average income tax rate by 12.89 percentage points in the third quarter compared with the same period last year.

Acquire Zhuolu Land and Suizhong Land, expand and expand the next city

On October 15, 2019, the company announced that it would acquire 100% shares of Zhuolu Dadi and Suizhong Dadi. The main operating areas of Zhuolu Land are located in Zhangjiakou City, Cangzhou City and Baoding City, Hebei Province, which are at the core of the coordinated development of Beijing, Tianjin and Hebei Province. with the company's existing business area, it will form a strong synergy in pipe network interconnection, gas procurement and management. Zhuolu lost 7.26 million yuan in 2018 and turned a loss into a profit in the first eight months of 2019, realizing a net profit of 3.678 million yuan. Suizhong Land is still in the stage of construction and has not been put into operation. After completion, the company will cover the urban area of Huludao and the areas under the jurisdiction of Suizhong County, Jianchang County and Xingcheng City where the natural gas pipeline network has not yet been connected.

The establishment of the pipe network company and the commissioning of the Sino-Russian eastern line to reduce the company's cost pressure according to the SASAC report, the northern section of the Sino-Russian eastern line was officially put into operation on October 16, and after the pipeline was put into operation, the pipeline mainly transported natural gas to the northeast region. before, the main gas source in the northeast region was the Shaanxi-Beijing system and then transported to the local area by the Qinhuangdao-Shenyang line. We believe that the volume of natural gas transported from the Qinhuangdao-Shenyang line to the northeast region will be greatly reduced after the Sino-Russian eastern route is put into operation, thus further relaxing the natural gas supply in the Beijing-Tianjin-Hebei region. In addition, the National Oil and Gas Pipe Network Company will also be established in the near future, and we believe that after its establishment, the National Pipeline Network Company will break the monopoly of three barrels of oil in the middle reaches of the pipeline and realize the separation of the upstream gas source and the middle reaches of the pipeline, so that the middle reaches of the pipeline can be fairly opened to all upstream gas sources and downstream city fuel enterprises, and is conducive to reducing the mid-stream pipeline transportation costs, so as to further reduce the cost pressure of downstream city gas enterprises.

Maintain Baichuan Energy "Buy" rating

In recent years, the company is actively looking for high-quality urban gas projects, and has successively acquired Jingzhou Natural Gas, Fuyang Gas, Zhuolu Land and Suizhong Earth, and achieved sustained growth in performance through epitaxial expansion. and provides more space for future development. At the same time, the company continues to promote the layout of the whole natural gas industry chain, including the construction of a LNG receiving station in Suizhong County (designed to receive 3 million tons / year), as well as investment in Baichuan to engage in oil and gas resources project development and international energy trade. We estimate that from 2019 to 2021, the company's operating income will reach 5.655 billion yuan, 6.934 billion yuan and 8.406 billion yuan respectively, and the net profit of returning to the mother will be 936 million yuan, 1.026 billion yuan and 1.141 billion yuan respectively, and the corresponding EPS will be 0.65 yuan, 0.71 yuan and 0.79 yuan respectively.