2023 core profit slightly below market expectations
The company announced its 2023 results: revenue of 177.4 billion yuan, +3% year on year; net profit to mother of 5.68 billion yuan, +8.7% year on year, core profit of 6.14 billion yuan, -2.2% year on year. The company's core profit was slightly lower than market expectations, mainly due to 2H23's employee compensation costs increasing by about 710,000 yuan month-on-month. The company plans to pay an annual dividend of 0.28 yuan/share, corresponding to the core profit dividend rate of 40%.
In 2023, the company's gas retail sales volume was +9.2% year-on-year to 30.3 billion square meters, with industrial gas volume +15.5% to 21 billion square meters, commercial users +11% to 2.9 billion square meters, and retail gas gross margin of 0.501 yuan/square meter, which is basically the same as the previous year. The average load rate of LNG terminals was 90.6%, +2.7ppt year over year.
Furthermore, the company announced a three-year dividend distribution plan for 2023-2025, which aims to raise the dividend ratio to 45% in 2025, and will distribute dividends twice in the interim and final periods in 2024/2025.
Development trends
Industrial gas volume growth in 2024 may continue to lead the industry. With the advantages of industrial chain integration and the resource-side support of the parent company, Kunlun Energy's industrial user/gas sales scale achieved rapid growth. By the end of 2023, the number of industrial users of the company reached 14,350, an increase of 9348 over 2018; in 2018-2023, the gas volume growth rate of industrial customers reached 26%, clearly outperforming the industry. Looking ahead, with the acceleration of China's natural gas marketization reform and the further expansion of the direct supply market, we believe that the company's industrial gas sales will grow by around 15% in 2024-2025.
Strengthen the gas and electricity market. The company completed division restructuring in 2023 and formed five major divisions: urban gas, liquefied petroleum gas, gas power and new energy, and Hong Kong (overseas). Considering the volatility of renewable energy supply, we believe that the increase in medium- to long-term peak shifting demand is expected to drive China's power generation gas consumption to 150 to 200 billion square meters from about 64 billion square meters in 2023. We believe that the company's cost and stable supply advantages on the natural gas resource side have laid a good foundation for the company to gain a high market share in the power generation gas market.
There is still room for improvement in medium- to long-term dividend payout capacity. By the end of 2023, the company's net cash was about 20 billion yuan. Looking ahead, considering that the company's capital expenditure scale may remain at a reasonable and stable level in the next 2-3 years, the continued accumulation of free cash flow also lays a good foundation for the company to further increase its dividend payout ratio in the medium to long term.
Profit forecasting and valuation
Taking into account the exit of upstream assets, we lowered our 2024 profit forecast by 12% to 6.46 billion yuan and introduced the 2025 profit forecast for the first time of 6.94 billion yuan. The current stock price corresponds to the 2024/2025 price-earnings ratio of 8.1 times/7.2 times. Considering that the high increase in industrial gas sales is expected to positively catalyze the company's valuation, maintain the industry rating and target price of HK$8.50, which corresponds to 10.1 times the 2024 price-earnings ratio and 9.0 times the 2025 price-earnings ratio, with 25.2% upside compared to the current stock price.
risks
LNG prices fell sharply, and the smooth price progress fell short of expectations.