In the first half of 2023, the company's core natural gas sales business developed rapidly in line with industry trends. The year-on-year growth rate of natural gas sales was 9.0%, significantly higher than the 5.6% level of the industry during the same period. As CNPC's only natural gas retail terminal, it is expected that future natural gas sales will maintain a relatively rapid growth rate. At the same time, it is expected to benefit from the “smooth price” of urban natural gas to achieve a sharp rise in volume and price, further highlighting its main business advantages. We maintain our 2023-2025 net profit forecast of $64.53/74.85/$8.330 billion, corresponding to the 2023-2025 EPS forecast of HK$0.88/1.02/1.13. Considering that the profits and valuations of comparable companies were both downgraded and affected by exchange rate fluctuations, the company's target price was lowered to HK$7.2 and given a “buy” rating.
Natural gas sales have been rising steadily, and the company's mid-report performance has been growing steadily. In the first half of 2023, the domestic economy rebounded for the better, the tight supply and demand situation in the global gas market eased somewhat, and high international gas prices fell back. New natural gas price linkage policies have been introduced in many parts of the country to promote the steady development of the urban combustion industry, and the country's natural gas consumption has returned to a reasonable growth range. The company seized the opportunity for the industry to recover, and its operating performance reached the best level in the same period in history. In 2023H1, the company achieved revenue of 87.07 billion yuan, +3.8% year on year; profit before income tax of 6.79 billion yuan, +8.2% year on year; profit attributable to shareholders was 3.22 billion yuan, +4.6% year on year.
The natural gas sales business continues to grow, with a significant increase in industry and commerce. The company's performance has been growing steadily, mainly due to the rapid development of its core business, the natural gas sales business. In 2023H1, the company's natural gas sales business achieved revenue of 69.86 billion yuan, +8.9% year-on-year, accounting for +3.9 pcts to 78.1%; profit before tax was 4.89 billion yuan, or +26.1% year-on-year. In terms of volume, the company's total natural gas sales volume in 2023H1 was 23.92 billion square meters, +9.0% year-on-year, higher than the apparent year-on-year growth rate of China's natural gas consumption of +5.6%. The company's retail sales volume was 14.79 billion square meters, +9.5% year-on-year. Among them, industrial and commercial users were +11.1% and +11.5%, respectively, a significant increase. The company's customer structure has been gradually optimized, with 506,900 new 2023H1 natural gas users, including 492,600 residential users and 14,300 industrial and commercial users.
There has been a slight increase in the one-sided gross margin of natural gas, and it is expected that the future will benefit from a “smooth price” increase in volume profit. On the profit side, despite the decline in high international gas prices, the domestic long-term cooperative contract price is still lagging behind and is at a high level, and cost pressure is still there. 2023H1, the weighted average purchase price difference of the company's natural gas was 0.495 yuan/square meter, +0.2% year-on-year. As the “increase storage and production” campaign progresses, domestic natural gas resources become more abundant. At the same time, international gas prices have dropped markedly, and the pressure on the company's cost side will continue to decrease. In February 2023, the Price Department of the National Development and Reform Commission requested all regions to put forward specific opinions and suggestions on establishing and improving the upstream and downstream price linkage mechanism for natural gas. Since March, Hunan, Inner Mongolia, and Zhejiang have successively held price linkage mechanism hearings or issued notices to gradually carry out natural gas price promotion work. With the beginning of the second half of the year, the centralized implementation of the price promotion policy will accelerate, and it is expected that the company's unilateral gross margin pressure will be greatly alleviated. As CNPC's only natural gas sales terminal platform company, we expect the profitability of this business to increase further.
The LNG processing, storage and transportation business has remained basically stable. At 2023H1, the company achieved revenue of 5.19 billion yuan from LNG processing, storage and transportation, and -14.4% year-on-year, profit before tax of 1,341 billion yuan, or -19.9% year-on-year. Influenced by the warm winter at the beginning of the year, the two LNG receiving stations in Jingtang and Jiangsu achieved a total of 7.34 billion square meters of LNG gasification and loading volume, -6.7% year on year, and an average load rate of -6 pcts. The 15 LNG plants had an average load rate of 38.9%, achieving self-production and sales of 4.2 million square meters and commissioned processing of 678 million square meters, which was -32.0 and -2.6%, respectively. In the future, the company will accelerate the Fujian LNG Terminal and Jiangsu LNG Terminal Phase III expansion projects, giving full play to the advantages of integrating the LNG industry chain.
The scale of the LPG sales business is stable, and the exploration and production business continues to gain strength. The overall scale of the company's LPG sales business has remained stable. 2023H1 achieved revenue of 13.86 billion yuan, -8.0% year on year; realized profit before tax of 423 million yuan, -7.6% year on year; and sales volume of 2.937 million tons, +5.1% year on year. The exploration and production business was affected by the gradual decline in international crude oil prices, which declined somewhat, but had little impact on overall performance. 2023H1 achieved revenue of 610 million yuan, or -48.6% year on year; realized profit before tax of 289 million yuan, or -47.17%; realized an average crude oil sales price of 65.6 US dollars/barrel, -15.7% yoy; crude oil sales volume of 4.84 million barrels, -13.7% yoy.
The annual goals are being actively promoted, and the results for the second half of the year are expected to be another success. At the beginning of 2023, the company issued the annual strategic guidelines. It is expected that the annual gas retail volume will increase by more than 10%, the number of new users will be added, the LPG sales volume will reach 5.4 million tons, the LNG receiving station load rate will reach 90%, and crude oil equity sales volume will reach 9 million barrels. According to the latest interim report, the company has achieved a 9.5% increase in gas retail gas volume, 50.7 new users, 2.94 million tons of LPG sales, a load rate of 81.8% at the same time, and 4.84 million barrels of crude oil equity sales. At the same time, the mid-year report reaffirmed maintaining the annual guidelines No change. We expect the natural gas retail growth rate and LNG terminal load rate to increase month-on-month in the second half of the year. At the same time, considering that natural gas retail performance accounts for more than 70%, we expect the second half of the year's performance to reach a new high.
Risk factors: The risk of large fluctuations in international oil and gas prices, the risk of domestic economic recovery falling short of expectations, the risk of major changes in domestic gas industry policies, and the risk of exchange rate changes.
Profit forecasting, valuation and rating: Considering that the company continues to increase sales volume and market share, optimize product sales structure, and benefit from natural gas price promotion policies in various provinces and cities in 2023, we believe the company's performance is expected to improve significantly. We maintain our 2023-2025 net profit forecast of $64.53/74.85/$8.330 billion, corresponding to the 2023-2025 EPS forecast of HK$0.88/1.02/1.13. We selected Xinao Energy, China Resources Gas, Ganghua Smart Energy, and China Gas as comparable companies. According to Wind's unanimous forecast data, comparable companies were 8.2xPE in 2023 (profit and valuation were lowered compared to comparable companies at the beginning of the year due to economic development and natural gas demand growth that fell short of expectations), lowered the company's target price to HK$7.2 (the original target price was HK$8.8), and maintained the “buy” rating.