China Resources Gas announced its 2023 annual results: achieved operating revenue of HK$101.272 billion, an increase of 7.35% over the previous year. Net profit attributable to shareholders was HK$5.224 billion, up 10.36% year over year. Excluding exchange rate effects, net profit attributable to mother was HK$5.48 billion, which was basically in line with our expectations. The company's operating cash flow increased by 133.4% year over year. Basic earnings per share were HK$2.30, up 10.05% year over year; the company plans to pay a final dividend of HK100.69 cents and a full year dividend of 115.69 HK cents, with a dividend ratio of 50.3%.
Exogenous endogenous growth has also been carried out, and the scale of sales has maintained rapid growth. In 2023, the company's annual retail gas sales volume was 38.78 billion square meters, up 8.1% year on year. Among them, resident/industrial/commercial gas volume increased 11.1%/7.2%/9.0% year on year, respectively. In 2023, 4 new natural gas projects were registered at the group level, 3 new projects were signed at the member enterprise level, and 4 newly registered projects were completed during the year. The financial consolidation of Chongqing Gas, the increase in shares in the Xiamen project, and the holding of Kunming Gas was completed during the year, further consolidating the company's dominant position in the core city gas market.
The smooth price work is being actively promoted, leading to a significant improvement in sales profits. The company's annual sales gross margin was 0.51 yuan/m? , a year-on-year increase of 0.06 yuan/m3. We believe that the main reasons for the rapid correction of the company's gross sales gap include: 1) the company is deeply involved in the core city market, and the positive gas prices for residents have leading and exemplary effects; 2) the rapid growth of commercial gas in high-margin industrial and commercial gas, and the improvement of the sales structure is beneficial to the overall gross margin recovery. Due to the double increase in gas sales scale and gross margin, natural gas sales performance reached HK$7.60 billion (including gas station performance), up 29.4% year on year. Among them, the gas sales profit growth rate reached 39.1% in the second half of the year, and the profit level of the gas sales business improved at an accelerated pace.
Liquidity remains stable and financial flexibility is sufficient. In recent years, the company has actively carried out epitaxial mergers and acquisitions, and the company's capital expenditure in 2023 reached HK$7.89 billion. In order to guarantee the company's reasonable and abundant liquidity, the company actively expanded its loan scale to support the development of its main business. By the end of 2023, the company's bank deposit and cash balance was HK$9.98 billion, up 55.0% year on year, and the overall financing cost was 2.4%, maintaining the best in the industry. The company's interest-bearing debt ratio is only 29.6%, which remains low, and the financial resources for the company's project investment and business remain abundant.
Accelerating the construction of an autonomous natural gas resource pool is expected to reduce long-term comprehensive intake costs. In 2023, the company began construction of the Rudong receiving station with a turnover capacity of 6.5 million tons/year. The geographical location of the terminal is highly compatible with the company's downstream key gas market. At the same time, the company signed a ten-year pipeline gas long-term agreement with CNPC, with a total volume of 41 billion square meters, further enhancing the gas supply guarantee capacity and helping to calm large fluctuations in seasonal costs. Additionally, the company is supplementing 400 million parties with unconventional resources. As the company's ability to obtain resources continues to improve, the diversified intake structure is expected to continue to optimize air source costs.
The integrated energy business is growing rapidly. The company added 3.3313 million new residential users in 2023, of which 87.0% were new home users, and the cumulative number of natural gas users grew to 57.80,000. The continuous expansion of the number of users provided huge market space for the company to develop comprehensive services and integrated energy services. During the year, the company signed 98 new distributed photovoltaic projects, 32 new projects were put into operation, and 168 were developed; 30 new distributed energy projects were signed, 34 new projects were put into operation, and a total of 173 were developed. The annual energy sales volume was 2.94 billion kilowatt-hours, an increase of 58.5% year on year, and achieved comprehensive energy business turnover of HK$1.64 billion, up 72.8% year on year, and gross profit of HK$270 million, up 120.7% year on year. In the long run, we believe that the integrated energy business is expected to continue to increase its performance and is expected to become the company's second growth curve.
Maintain a “buy” rating. Based on the expectations of continued expansion of the company's gas projects, stable gas sales growth and steady correction of gross margin, we maintained the company's net profit to the mother of HK$6.248 billion and HK$6.812 billion respectively for 2024-2025, and added a net profit forecast of HK$7.809 billion for 2026. The current stock price, corresponding to 2024-2026 PE, is 9.1, 8.3, and 7.2 times, respectively, maintaining a “buy” rating.
Risk warning: The risk of high fluctuations in natural gas prices, falling short of expectations in domestic smooth prices, and lower than expected growth in gas sales.