Net profit to the mother was +18% year-on-year in 2023. The profit forecast and target price of Shenzhen Gas released its annual report. In 2023, it achieved revenue of 30.9 billion yuan (+3% YoY), net profit of 1.44 billion yuan (+18% YoY), after deducting non-net profit of 1.36 billion yuan (+26% YoY). Net profit was slightly higher than the performance forecast. Of these, 4Q23 achieved revenue of 7.7 billion yuan (+3% year over year) and net profit of 340 million yuan (-7% year over year).

The net profit margin of pipeline gas was raised in Shenzhen; we expect the company's EPS in 2024-2026 to be 0.62/0.69/0.80 yuan (previous value 0.57/0.65/- yuan); the company's net profit for gas/photovoltaic film in 24 is estimated to be 166/120 million yuan. The average value of PE in the gas/photovoltaic film industry in 2024 is 10/18x (Wind agrees). The company was given 14x target PE for the gas sector in 2024 (the company's net profit CAGR is higher), 17x target PE for the photovoltaic film sector (a slight discount because the net profit CAGR of the company's photovoltaic film is lower than that of its peers), with a target market value of 25.3 billion yuan and a target price of 8.8 yuan (previous value of 7.62 yuan, based on gas/photovoltaic film 2024 13/18xPE). Maintain “buy-in.”

Urban gas: Pipeline gas sales were better than peers, with profit margins rebounding +18% to 4.84 billion square meters in 23 years, and the growth rate was far higher than the national average (+7.6%); of these, power plant sales were +38% to 1.51 billion square meters, which is expected to continue to benefit from falling gas prices combined with the commissioning of new power plants; urban gas sales +11% to 3.33 billion square meters, Shenzhen region +5% to 1.24 billion square meters, industrial gas demand is yet to rebound. 900 million square meters, thanks to new energy and other industries driving demand . At the end of 23, the company had 57 projects and 514/2.49 million users outside of Shenzhen/Shenzhen. The gross margin of pipeline gas in '23 was +2.3pp to 10.5% year-on-year. Shenzhen completed urban fuel efficiency in March '24, and we expect gross margin to gradually rise to 16% in 24-26.

Gas resources: Wholesale gas volume has returned to high growth, and the LNG supply chain continues to strengthen gas wholesale volume by +60% to 530 million square meters in 23 years. We expect to benefit from the decline in LNG prices in 24; the company's overseas long-term cooperation resources have been implemented, and the company has signed 9.69 billion square meters in 10 years, highlighting the advantages of diversification of the company's resource pool; the company uses the Dapeng Pipeline to develop power plants and urban combustion users along the route to ensure subsequent long-term cooperation consumption. The second phase of the Shenzhen Natural Gas Reserve and Peak Diversion Depot expansion project began at the end of '23 and is scheduled to be put into operation in '26. At that time, the company's annual LNG turnover capacity is expected to increase from 800,000 tons to 2.8 million tons. The company's own LNG ship was officially delivered in early '24 and temporarily leased. In the future, with the launch of the company's LNG agreement, it is expected to mitigate shortfalls in capacity and strengthen the company's LNG supply chain.

Comprehensive energy: PV film remained in the first tier, and PV and natural gas power generation combined with Swick (49.94% of the company's holding) maintained the second largest share of the global market share. In 23, PV film sales volume was +32% to 670 million square meters, adding 120 million square meters of production capacity; however, due to falling film prices, revenue was -8% to 5.8 billion yuan, and net profit was -27% to 150 million yuan. The company focuses on high-quality photovoltaic resources in the Greater Bay Area. At the end of '23, it had an installed capacity of 245 MW and an annual power generation capacity of nearly 300 million kilowatts; Deep Fuel Thermal Power Phase II 9F (2x470,000) Unit 1 was about to be put into operation, and Unit 2 began construction in November '23.

Risk warning: gas prices have risen sharply; demand for photovoltaic film falls short of expectations.