Retail sales are lower than expected, and financial expenses are growing faster
FY23's profit declined to rise, and shareholders' net profit rose 7.9% year on year to $480 million (RMB, same below), but it was still lower than our forecast of 660 million yuan 27.1%, mainly due to (1) retail sales growth rate of 4.5% year on year, all lower than company guidelines and our forecast of 6%-8% and 7.1% respectively; (2) wholesale sales increased 40.2% year on year, lower than our forecast of 45.0%; (3) Due to rising US dollar and Hong Kong dollar borrowing interest rates, financial expenses increased 20.4% year on year to $33.9 billion, higher than our forecast of 33.9 billion yuan 26.3% As of the end of December last year, foreign currency loans accounted for 43.3% of total loans (USD 34.1%; HKD 8.2%).
Some operating performance was basically in line with the guidelines given by the company last year, such as (1) gross sales margin of 0.48 yuan/square meter (guideline: 0.48-0.50 yuan/square meter); (2) adding 285,000 new urban combustion residents (guideline: 280,000 to 300,000 households).
The company's FY24 guidelines are cautious
The company announced prudent FY24 guidelines, including (1) retail gas sales increased by 5%-6% year on year; (2) gross sales margin of 0.48-0.50 yuan/square meter; and (3) the addition of 280,000 to 300,000 new urban fuel households. However, considering that FY23's performance in meeting the standards is not ideal, compounded by risks in the mainland real estate market affecting gas business expansion, I conservatively expect FY24 retail sales to increase 4.4% year-on-year, adding 222,000 new urban fuel residents.
Lower profit forecasts
In response to FY23 results and the company's FY24 guidelines, we reduced FY24-25 shareholders' net profit forecasts by 32.1% and 36.2% to $540 million and $60 billion respectively, up 11.9% and 12.6% year-on-year.
Adjust the rating to “neutral” without ruling out the possibility of a revaluation
Accordingly, we reduced our target price from HK$6.12 to HK$5.05, corresponding to 8.5 times FY24 price-earnings ratio and 0.1% room for growth. The company's stock price rose by 28.2% in the past three months, far superior to peers and the Hong Kong stock market. The current price roughly reflects the company's reasonable valuation. We downgraded the rating from “buy” to “neutral.” We will promptly follow up on the progress of the company's operations and further adjust the valuation.
Risk warning: (1) project delays, (2) tight natural gas supply, (3) reduced or cancelled connection fees.