Main points of investment:
The core point. (1) the company's main business includes crude oil terminal and warehousing, natural gas pipeline transportation and LNG shipping business, which is China Petroleum & Chemical Corp's warehousing and logistics platform. (2) the crude oil terminal and warehousing business, which maintains the leading position in China, accounts for about 50% of the domestic market share, and is the company's main source of profits. (3) the annual pipeline capacity of Yuji natural gas pipeline is 5 billion cubic meters, and the profit is stable. (4) when the LNG carrier is put into operation, it will become the profit increment of the company. (5) We estimate that the company's EPS for 2020-2022 will be HK $0.55, HK $0.55 and HK $0.57 respectively, giving the company an investment rating of "better than the market".
First-class international petrochemical service provider with stable profitability. From 2015 to 2019, the company's net profit maintained steady growth, with a compound growth rate of 4.58%. The company's net profit in 2019 was HK $1.284 billion, maintaining the momentum of profit growth. In 2019, the company's crude oil terminals and warehousing, natural gas pipeline transportation and LNG shipping business accounted for 78 per cent, 17 per cent and 6 per cent, respectively.
Crude oil terminal and warehousing business: good development, occupies a leading position in the market. The company's seven large domestic crude oil terminals have an annual handling capacity of 290 million tons, accounting for about 50% of China's crude oil imports, and have occupied the leading position of domestic crude oil terminals for many years. The company has 4 overseas warehouses, located in Fucha oil warehouse to maintain high-load operation. The net profit of the company's crude oil terminal and warehousing business continued to rise, with a compound growth rate of 8.35% from 2015 to 2019.
Natural gas pipeline transportation business: Yuji pipeline is facing divestiture. The annual pipeline capacity of Yuji natural gas pipeline is 5 billion cubic meters, and the transportation of natural gas in 2019 is 3.999 billion cubic meters, which is basically stable. By the end of 2019, the total assets of the business unit were HK $4.545 billion, with an asset-liability ratio of 43.19%. The National Pipe Network Company was established in 2019 and intends to acquire some or all of the assets of China Petroleum & Chemical Corp Guande Yuji Line, and the company is negotiating the relevant agreement.
LNG shipbuilding business: is expected to contribute to profit increment. Eight overseas LNG ships were put into operation in 2019, and the profit of this business segment is expected to continue to grow with the increase in capacity.
Profit forecast and valuation. We estimate that the company's EPS for 2020-2022 will be HK $0.55, HK $0.55 and HK $0.57 respectively, with an investment rating of "better than the market" based on the BPS of HK $4.98 and HK $0.65-0.70 times PB in 2020, corresponding to a reasonable value range of HK $3.24-HK $3.49.
Risk hints: the growth of oil and gas demand is not as expected, and the progress of divestiture is not as expected.
