The Zhitong Finance App learned that Haitong International released a research report stating that according to Kunlun Energy (00135)'s “superior to the market” rating, the company's main operating income for FY23-25 is 1,821.58/1,950.66/207.953 billion yuan, respectively. The corresponding net profit to mother is 60.95/64.97/6.86 billion yuan, with a target price of HK$7.96 billion. The company is one of the largest natural gas terminal users and LPG sales companies in China. It has extensive business in 31 provinces, autonomous regions and municipalities in China, with annual sales of 20 billion cubic meters of natural gas, 19 million tons of LNG terminals, and sales of more than 6 million tons of liquefied petroleum gas per year.

Haitong International's main views are as follows:

Revenue continues to grow, and the natural gas sales business is the main source of revenue.

In recent years, Kunlun Energy's revenue has grown steadily, reaching 87.072 billion yuan in 2023H1, up 3.8% year on year; profit before tax was 6.791 billion yuan, up 8.2% year on year. Kunlun Gas 2023H1 natural gas sales/LPG sales/LNG processing and storage and transportation/exploration and production revenue was 688.96/138.04/37.64 billion yuan respectively. Among them, the natural gas sales business was the company's main revenue source, accounting for 79.1%. Revenue increased 8.5% year-on-year, exceeding the company's total revenue growth rate of 3.8%. Next is the LPG sales business, which accounts for 15.8% of revenue.

The growth rate of natural gas sales is stable, and the price spread of natural gas is stable to a high degree.

In the first half of 2023, Kunlun Energy achieved natural gas sales of 23.916 billion cubic meters, up 9.0% year on year, of which retail gas volume was 14.787 billion cubic meters, up 9.5% year on year. In the first half of 2023, Kunlun Energy's natural gas price spread was 0.495 yuan/cubic meter, an increase of 0.01 yuan/cubic meter compared with the first half of 2022, and is rising steadily. The size of the terminal market maintained a steady growth trend. The total number of users reached 15.2.22 million, an increase of 3.4% over the previous year, and 506,900 new users were added. The company continues to expand its operating layout. In the first half of the year, the company acquired, newly established, increased capital and shares to hold 5 urban gas projects. As of June 30, 2023, the company held 272 urban combustion projects. With the continuous implementation of commercial gas favorable price policies in various regions, the company's natural gas price spread is expected to rise steadily in the future.

The emerging business landscape framework has basically taken shape, and the momentum for sustainable development is even stronger.

Kunlun Energy has thoroughly implemented the concept of green development, focusing on efforts to obtain new energy indicators, grab the beach and lay out the wind, gas and electricity integration business, obtain 3 million kilowatts of new energy indicators, and put into operation 8 new energy projects. The comprehensive energy business is advancing at an accelerated pace, focusing on users' diverse energy needs such as gas, electricity, heat, and cold, continuously enriching energy use scenarios, and promoting the commissioning and operation of 12 projects and the orderly development of 24 projects. At the same time, the company continues to improve its ESG governance system and has achieved three consecutive years of upgrading the MSCI rating.

Risk warning: 1. Natural gas policy risk; 2. Natural gas price fluctuation risk; 3. Risk of terminal demand falling short of expectations.