1H23's performance met our expectations
The company announced 1H23 results: revenue of 117.1 yuan, down 24.7% year on year; net profit of 1.44 billion yuan, down 11.0% year on year, corresponding to profit of 0.34 yuan per share, in line with our expectations. Among them, 2Q23 achieved revenue of 3.49 billion yuan, a year-on-year decrease of 10.4%, and a year-on-year net profit of 60 billion yuan, a year-on-year decline of 11.8%.
In terms of natural gas business, 1H23's gas transmission volume was 2.39 billion square meters, with a year-on-year ratio of -2.9%, of which 2.06 billion square meters of gas sales volume, -5.8%; in the power generation business, 1H23's feed-in electricity volume was 7,640 GWh, +2.1%, of which the market share of electricity accounted for 37.3%, and the feed-in electricity price (excluding tax) was 0.44 yuan/kWh.
Development trends
2H23 The gas business is profitable and is expected to begin to recover. Affected by factors such as lower management and transportation fees/weak downstream demand, Hebei Natural Gas Co., Ltd., the natural gas business operator of 1H23, achieved net profit of 337 million yuan, -44% year-on-year. Looking ahead, we believe that 2H23's natural gas sales business profit is expected to begin to recover, mainly based on: 1) The company's LNG long-term cooperation has begun to fulfill the contract in mid-June (we expect that 2H23 will save 3-4 billion yuan in gas purchase costs); 2) Some of the company's urban combustion projects have completed residents' price guidance, and sales prices have been raised.
Extracting assets helps increase the medium- to long-term return on the company's new energy projects. We believe that with the increase in domestic wind and wind installed capacity, the importance of power pumped and storage stations in power grid peak-shaving and distribution will be further demonstrated. By the end of 1H23, 10 units of the Fengning Power Station (3.6 GW installed capacity), where the company owns 20% of its shares, had been put into operation. We expect the last 2 units to be put into operation within the year. In addition, the company is actively obtaining new pumped storage projects. Among them, the Baoding Laiyuan Huanghuatan 1.4GW pumped storage project has been reported to the National Energy Administration for review. We believe that the gradual commissioning of the company's pumping project will not only bring new profit increases to the company, but is also expected to gradually drive the company to steadily increase the return on new energy projects in operation.
Profit forecasting and valuation
The profit forecast for 2023 and 2024 remains essentially unchanged. The current A-share price corresponds to 2023/2024 13.7x/11.2x P/E. The current H share price corresponds to 4.1x/3.2x P/E in 2023/2024. A/H shares continue to outperform industry ratings, but due to the downward shift in market valuation centers, we lowered the target price of A/H shares by 16.7%/12.5% to HK$10.00/HK$3.50, corresponding to 16.6x/13.6xP/E for A-shares 2023/2024, corresponding to 5.2x/4.1x P/E for H shares, and 5.2x/4.1x P/E for H shares. There is room for an increase of 21.4%/26.8% respectively from the current stock price.
risks
Renewable energy subsidized recycling fell short of expectations, and gas prices fluctuated sharply.