Listed enterprises owned by Shenzhen's state-owned assets are collaborating in the development of integrated energy and other businesses, mainly urban fuel. The company is a state-owned listed enterprise focusing on urban gas management and collaborative development of upstream resources, comprehensive energy, and smart services. It operates 57 urban (district) pipeline gas projects in 11 provinces (districts) including Guangdong, Guangxi, and Jiangxi. The company controlled Jiangsu Swick in 2021 and entered the photovoltaic film industry. It acquired 4 photovoltaic power generation companies during the same period, with a total installed capacity of about 210 MW; the company's subsidiary, Shengnan Thermal Power, lays out natural gas power generation and heating business.

The 2023Q1-3 net profit is growing rapidly, and the smart gas and gas resources are two-wheel drive. In 2023, Q1-3, the company achieved operating income of 23.193 billion yuan, +2.88% year-on-year; realized net profit of 1.05 billion yuan, +28.23% year-on-year; and achieved gross margin/net profit margin of 15.49%/4.77%, respectively, +0.72pct/+0.95pct year-on-year. On a quarterly basis, 2023Q3 achieved revenue of 7.971 billion yuan, +2.90% year-on-year; net profit of 456 million yuan, +41.00% year-on-year. The company's net profit increased significantly in the first three quarters, mainly due to profit growth in the smart gas sector and gas resources sector.

Natural gas sales were +20.35%, and power plant gas volume increased significantly. The sales volume of natural gas in the first three quarters of 2023 was 4,015 billion cubic meters, +20.35% year-on-year, of which pipeline gas sales in Shenzhen were 2.138 billion cubic meters, +23.23%; pipeline natural gas sales outside of Shenzhen were 1,510 billion cubic meters, +12.77%; and natural gas wholesale volume was 367 million cubic meters, +40.08% year-on-year. According to user classification, power plant natural gas sales volume was 1.24 billion cubic meters, +38.55% year-on-year, and non-power plant natural gas sales volume was 2,811 billion cubic meters, +13.94% year on year. At the same time, the company's natural gas transfer volume was 649 million cubic meters, a year-on-year increase of 4.17%.

Accelerate the development of the photovoltaic packaging film business, and spun off the subsidiary Jiangsu Swick to go public. The company plans to spin-off Swick and go public on the GEM market, and announced plans in August. According to the plan, Swick plans to raise 1.7 billion yuan, of which 1.1 billion yuan will be used for a solar photovoltaic encapsulation film production line with an annual output of 300 million square meters, and another 600 million yuan to supplement working capital. Swick focuses on the photovoltaic packaging film business. This spin-off and listing will help Swick expand its capital strength and broaden its financing channels.

Profit forecast: First coverage, given an “increase in holdings” rating. We estimate that in 2023-2025, the company's operating income is 321.69/346.59/37.425 billion yuan, net profit is 1,533/18.27/2.129 billion yuan, and corresponding PE is 13.57x/11.38x/9.77x, respectively.

Risk warning: changes in the macroeconomic situation at home and abroad have exceeded expectations, demand for photovoltaic films has fallen short of expectations, natural gas sales have fallen short of expectations, new business development has fallen short of expectations, gas prices have risen sharply, and profit forecasts and valuation models have fallen short of expectations