Kunlun Energy Co., Ltd. is one of the largest natural gas terminal utilization companies and LPG sales companies in China. Kunlun Energy is mainly engaged in urban gas, natural gas pipelines, liquefied natural gas (LNG) and compressed natural gas (CNG) terminals, natural gas power generation and distributed energy, liquefied natural gas (LNG) processing and storage, and liquefied petroleum gas (LPG) sales. As a subsidiary of CNPC Holdings, Kunlun Energy uses the resource advantages and synergy of its parent company to spread its business in 31 provinces, autonomous regions, and municipalities directly under the Central Government 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.
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. 2023H1 reached 87.072 billion yuan, 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 15.222 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, and increased its share capital to hold 5 urban gas projects. As of June 30, 2023, the company controlled 272 urban gas 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 progressing at an accelerated pace, focusing on users' diverse energy needs such as gas, electricity, heat, and cooling, and continuously enriching energy use scenarios to promote 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.
Profit forecasts and investment suggestions:
We expect the company's main revenue for FY23-25 to be 1,821.58/1,950.66/207.953 billion yuan, respectively, and the corresponding net profit to mother is 60.95/64.97/6.860 billion yuan. Based on the DCF model, the estimated target price is 7.96 HKD/share, giving a “superior to the market” rating.
Risk warning:
1. Natural gas policy risks;
2. Risk of natural gas price fluctuations;
3. Risk that terminal demand falls short of expectations