Introduction to this report:

Non-recurring profit and loss decreased, and net profit after deducting non-return to mother rose year-on-year in 4Q23. In 2024, Shenzhen's natural gas price reform is further advanced, and the company's gross margin is expected to be repaired.

Key points of investment:

Maintain the “gain” rating: Considering that the gross margin is expected to be fixed, the 2024-2025 EPS will be raised to 0.58/0.65 yuan (originally 0.57/0.61 yuan), and the 2026 EPS will be given 0.74 yuan. Based on the comparable company's PE valuation situation, the company was given a 2024 17x PE valuation, and the target price was raised to 9.86 yuan to maintain the “gain” rating.

The results slightly exceeded the quick results reporting guidelines. The company's revenue in 2023 was 30.9 billion yuan, +2.9% year-on-year; net profit to mother was 1.44 billion yuan, +17.8% year-on-year, slightly exceeding the performance report guidelines. 4Q23 revenue was 7.74 billion yuan, +2.9% YoY; net profit to mother was 330 million yuan, -7.1% YoY. In 2023, the company plans to pay a dividend of 0.16 yuan/share, accounting for 32.0% of net profit attributable to mother, +1.4 ppts year-on-year.

Non-recurring profit and loss decreased, and net profit after deducting non-return to mother rose year-on-year in 4Q23. 4Q23 natural gas sales were 1.36 billion cubic meters, +24.5% year over year (of which non-power plant sales were 1.05 billion cubic meters, +21.5% year over year). 4Q23 gross profit margin was 15.5%, +1.2 ppts year on year; net profit after deducting non-return to mother was 330 million yuan, +17.5% year over year; non-recurring profit and loss was 0.06 million yuan, -92.8% year over year, mainly related to the high base for the same period last year (4Q22 transfer back to 48 million yuan in receivables impairment provision).

Shenzhen's natural gas price reform is further advanced, and the gross margin is expected to be repaired. In March 2024, the Shenzhen Municipal Development and Reform Commission issued the “Notice on Jointly Adjusting the Sales Price of Pipeline Natural Gas in Our City”. The gas prices for residents and non-residents in Shenzhen increased by 0.31 yuan/cubic meter. Based on 2023 operating data (sales volume of 1.24 billion cubic meters of gas other than power plants in Shenzhen in 2023), the current price adjustment in Shenzhen contributed about 260 million yuan to the net profit of Shenzhen gas. Against the backdrop of a downward cycle in overseas natural gas prices, we think the company's gross margin is expected to be repaired.

Risk warning: The rise in gas prices exceeded expectations and reduced profits, the profit of photovoltaic film fell short of expectations, etc.