1H23's performance met our expectations
The company announced 1H23 results: revenue of 87.07 billion yuan, +3.8% year on year; net profit of 3.22 billion yuan, +4.6% year on year, corresponding to profit of 0.372 yuan per share, in line with our expectations.
1H23 achieved natural gas sales volume of 23.92 billion square meters, +9.0% year on year, of which retail gas sales volume was 14.79 billion square meters, +9.5% year on year, retail gas price difference 0.495 yuan/square, +0.001 yuan/square year; LNG receiving station average load rate of 81.8%, year on year -6.0 ppt; LPG sales volume of 2.937 million tons, +5.2% year on year, crude oil equity sales volume of 4.841 million barrels, -13.7% year on year, crude oil sales price of 65.6 US dollars/barrel.
1H23 maintained steady profit growth under the influence of multiple adverse factors such as falling oil prices and declining load rates at LNG terminals, mainly because the profit growth in terminal-facing natural gas sales business exceeded our expectations, and the profit contribution continued to increase (1H23's net profit attributable to natural gas sales business reached 2.34 billion yuan, +25.1% year-on-year, accounting for 73% of the company's net profit, +11.9ppt).
Development trends
By strengthening the development of industrial customers, the profit of the natural gas sales business is expected to continue to grow rapidly. In recent years, with the advantage of integration, the company has increased the development of natural gas end users, especially large-scale industrial users, and has achieved good results. By the end of 1H23, the company had 13,096 industrial customers, +30% over the same period, and 1H23 industrial gas volume growth rate of 11.1%, significantly outperforming peers. Looking ahead, considering that international gas prices may remain at a medium to high level in the next 2-3 years, the company's industrial chain integration advantages are still expected to provide support for the company to further expand the number of industrial customers. We expect that rapid growth in industrial gas volume may drive the company's retail gas volume growth center to remain above 10% over the next 2-3 years, and the company's natural gas sales business profit may continue to grow rapidly.
A new round of capital expenditure cycle for LNG terminals has begun. Currently, the company is promoting the production capacity of Jiangsu LNG Phase IV and Fujian LNG receiving stations. We expect the production capacity of the company's LNG receiving stations to increase by 6.5 million tons/year to 19.5 million tons/year by 2026. Considering that the company's LNG receiving stations mainly provide handling services for the CNPC Long Term Association contract, we believe that the capacity utilization rate of the new LNG receiving stations is still expected to remain above 85% (we count that by 2026, the scale of the LNG long-term cooperation in production will exceed 20 million tons/year).
Profit forecasting and valuation
Considering that the scale of the company's crude oil sales may decline further, we lowered our 2023/2024 net profit by 3.8%/3.6% to 6.629 billion yuan/7.383 billion yuan. The current stock price corresponds to 2023/2024 6.6x/5.7x P/E. Considering that maintaining a high growth rate in the company's natural gas sales business is expected to boost the company's valuation, maintain an outperforming industry rating and target price of HK$8.50, corresponding to 10.0x/8.6xP/E in 2023/2024, there is 50.4% upside compared to the current stock price.
risks
Oil prices fluctuated greatly, and the expansion of downstream customers fell short of expectations.