Operating expenses grew rapidly, and profits fell short of expectations, and there were no surprises with the final interest rate. China Resources Gas's profit in 2023 increased 10% year-on-year, below our/market expectations of 8%/7%. Mainly because the company's management and marketing expenses were 10%/16% higher than our expectations, which was a rare occurrence in previous years. At the same time, the profit contribution of the joint venture/joint venture was lower than our expectations of 34%/18%, which we believe is due to the lower than expected commercial gas price ratio. The company's retail sales volume increased by 8% during the period, and the gross margin was RMB 0.51 per party, in line with expectations. The new residents connected 3.37 million households, slightly higher than our forecast of 5%. It is worth noting that the company's dividend ratio remained at only 50%, and the final interest rate only increased by 10% to HK$1 per share in line with profit.

The downward trend in the number of new connections will continue to drag down the company's profit growth. Management explained that the increase in management and marketing expenses last year was mainly due to the merger of joint ventures. We expect that with the year-on-year increase in gas sales, the ratio of the rate to revenue will narrow. In terms of gas sales, management said that overall gas sales increased between 6-8% in January-January this year. Currently, it can be seen that industrial gas increased 9% year on year, so retail gas volume is expected to increase by about 7% this year. In terms of gross margin, management expects the net price ratio of civilian gas to rise by 10 points to 70%, and there is still room for a slight increase in gross margin. As for connecting new residents, management expects it to remain at the level of 3 million households this year. However, we still believe that the level of new households added is still high compared to less than 2 million households in other industries. We expect the company's new connections to 2024-26 to show a downward trend of -10% compared to the same period (290/261/2.35 million households during the period).

Short-term stock price performance may be pressured by unsurprising dividends, maintaining a neutral rating. We lowered our 2024/25 earnings forecast per share by 6%/11%, which mainly reflects the high level of management and marketing expenses.

At present, we still believe that the year-on-year decline in the company's new connections will have a big impact on the profit structure in 2024-26. We used the same predicted annual profit ratio of 10 times that of our peers as the company's valuation. The target price was lowered to HK$22.90 (previously HK$25.4), maintaining a neutral rating. At the same time, we believe that the company is inferior to its peers in terms of dividends, and there should be some pressure on stock price performance in the short term.