Investment logic
Covering the Beijing-Tianjin-Hebei region and the layout of the country's urban combustion company: Baichuan Energy has ploughed the Beijing-Tianjin-Hebei region for more than 20 years. Through continuous extension mergers and acquisitions, the company's business scope has covered Langfang, Zhangjiakou, and Wuqing District, Tianjin. Jingzhou City, Hubei Province, Fuyang City, Anhui Province and other areas, the national layout is beginning to take shape.
The company has its own gas transmission and distribution pipeline in the operating area, and is actively planning to build upstream LNG gas storage stations, constantly developing in the direction of integration and national operation, with great potential in the future.
Gas sales business upstream and downstream price mechanism to straighten out, gas sales business gross profit margin will be increased. In 2019, the upstream and downstream prices of the industry are basically synchronized, and the non-residential price increases in the three major business areas of Baichuan Energy have been completed; the supply and demand pattern of the industry has greatly improved, and the phenomenon of gas shortage will not reappear. The company's gross profit margin is expected to rise back to about 14% in 2019. With the ebb of coal-to-gas business in 2019, the company actively adjusts and puts the focus of new user development back on non-resident users with higher gross profit, and the gross profit structure will be improved.
Environmental protection policy helps to stack continuous mergers and acquisitions, and the connection business will be maintained at 300000 households a year in the future. It will be a long-term trend for natural gas to replace coal, and the control of air pollution in Beijing-Tianjin-Hebei region is also a long-term process. Environmental policies and energy transformation will continue to bring demand for connectivity and gas consumption. The company has carried out extension mergers and acquisitions for three consecutive years, expanding its business scope to Jingzhou, Hubei and Fuyang, Anhui, bringing additional increments to the connecting business. It is estimated that in 2019, the annual number of connecting households in Beijing, Tianjin, Hebei, Jingzhou and Fuyang will be 15, 4, 110000, and the total number of connected users will be maintained at the level of 300,000 / year.
The increase in the proportion of gross profit in gas sales drives the valuation up. The company's connection business developed rapidly in 2017 and 2018, which led to a sharp decline in the proportion of gas sales gross profit. As the connection business stabilizes, gas sales revenue continues to grow substantially, and the gross margin of gas sales is expected to rise. The proportion of gas sales gross margin of comparable City Gas Company and PE regression results show that there is a high positive correlation between the two. At present, the company's PE valuation is at a low level in the same industry, and the historical low stock price means that the increase of Baichuan Energy's gas sales gross margin ratio will lead to a rise in valuation level.
The dividend yield of more than 5% ranks first among public utilities, and the value of bonds is significant. At present, the dividend yield of the company is more than 5%, and the value of bonds is significant. As the LPR reform continues to push down real interest rates, high dividend targets will be sought after and benefit from excess benefits.
Investment suggestion
It is estimated that the 2021 net profit of the company will be 10.03, 10.71 and 1.76 billion, respectively, and the EPS will be 0.70, 0.74 and 0.82, respectively, corresponding to the current share price (closing price on 2020-1-20, 6.56). The PE is 8.0 times 9.4, respectively. At present, the company's share price is at an all-time low, valuing it at 13 times PE in 20 years, corresponding to a target price of 9.60 yuan, covering a "buy" rating for the first time.
Risk hint
The risk of higher-than-expected decline in connection revenue, the risk of lower-than-expected development of non-resident users, the risk of sharp fluctuations in natural gas prices, the risk of declining growth in the industry, the risk of pledge, and the risk of lifting the ban on restricted shares.