China Suntien 's 1H23 attributable net profit dropped 10.97% YoY to RMB1,439mn and operating cash flows declined by 12.5% YoY. The miss was attributable to: 1) reduced gas transmission volume growth; 2) lower wholesales gas transmission fee; 3) feeble economic recovery; and 4) on-grid tariff fall thanks to rising electricity trading. Mgmt. stays positive in 2H23E with lower gas cost as gas sources diversity and sturdily proceeding with project constructions. Additionally, Suntien's new energy installation will speed up in 2H23 and we predict it can achieve 480MW in 2023. Thus, we lower FY23/24E earnings by 7.2%/3.9% to RMB2,195/2,699mn.
Maintain BUY with TP trimmed to HK$4.16.
1H23 earnings slightly missed. Suntien's revenue slipped by 1.74% YoY and its net profit dropped by 15.32% YoY. The miss was dragged by: 1) for new energy segment, weaker wind resources lead to missed power generation growth of 1.91% to 7,719GWh; on-grid tariff declined as larger proportion of electricity trading; 2) For gas segment, the total gas transmission volume decreased by 2.9% YoY. In particular, retail gas sales and wholesales gas sales volume squeezed by 6.3% YoY and 4.9% YoY. Additionally, the declined wholesales gas transmission fee dropped from RMB0.223/cbm to RMB0.152/cbm (incl-tax) and relatively high gas cost weighed Suntien's gas segment profit.
2H23 to improve gas transmission volume and speed up new energy installation. Even though 1H23 total gas sales transmission volume dropped year-on-year with higher gas cost, we are optimistic on Suntien's earnings growth in 2H23E due to continuous economic recovery and lower gas cost of gas source diversity. Additionally, the new energy installation progress was slower due to delayed quota approval in 1H23, Suntien's mgmt. states that its new energy installation progress will speed up to reach its target of 450- 500MW in FY23E. We maintained our expectation of its newly installed wind power capacity of 480MW and on grid-tariff of RMB0.446/cbm in 2023.
The Tangshan LNG project's first phase smoothly involved in operations. Suntien's phase I of the Tangshan LNG Receiving Station project completed first LNG shipment. The projected LNG usage for the project from 2023 to 2025 is estimated to be 400-500/1500-2000/2000/3000 thous tons. As additional phases of the project become operational gradually, significant increases in profitability are anticipated.
Maintain BUY with TP adjusted to HK$4.16. We revise our FY23/24E earnings outlook slightly by -7.2%/-3.9% to RMB2,195/2,699mn respectively on lower-than-expected gas transmission volume and more conservative assumption with 3.3% power generation growth in 23E.
However, we think Suntien is still on track to accelerate earnings growth in FY23E. Our SOTP-based TP is cut from HK$4.57 to HK$4.16 after adjusting FX, reflecting 7.3x forward P/E (lower than 3-year avg.PE of 8.16x).
Maintain BUY.