All business segments were fully profitable in 2023, and the expense ratio declined during the period. The company achieved revenue of 177.35 billion yuan in 2023, up 3.2% year on year; gross margin reached 12.0%, down 0.2 pct year on year; operating profit margin reached 6.7%, up 0.2 pct year on year; net margin reached 5.2%, up 0.5 pct year on year; and net profit to mother of 5.68 billion yuan, up 8.7% year on year. The increase in revenue was mainly due to the increase in natural gas sales volume (up 9.6% year over year to 49.29 billion cubic meters), particularly the increase in retail gas driven by industrial and commercial users. In terms of other businesses, the average LNG load rate was 90.6%, and the processing volume of the LNG processing business increased steadily. The average LNG processing rate increased by 1.1 pct to 45.4% year-on-year in 2023. LPG sales increased 2.7% year over year to 5.768 million tons, and profit before tax from LPG sales increased 53.9% year over year. On the cost side, the company's fee rate continued to decline year by year, and the cost rate fell to 2.6% during 2023. As revenue grew and expense ratios declined, the company's basic earnings per share also increased steadily.
The number of industrial and commercial users is growing strongly, protecting sales volume and gross margins. The overall number of new users added by the company in 2023 increased 6.1% year-on-year to 891,000. Among them, the growth performance of industrial and commercial users was impressive. The cumulative number of industrial users and the cumulative number of commercial users increased by 22.3% and 34.5%, respectively. The compound growth rate of the number of new industrial users added by the company in the past 6 years reached 23.5%, ahead of peers. The company's gross margin in 2023 was 0.501 yuan/cubic meter, which is basically the same as in 2022. Thanks to the company's high share of industrial and commercial users, the gross margin fluctuation was significantly lower than that of its peers. Looking ahead to 2024, the company expects 800,000 new users, and natural gas sales are expected to increase by 10% year on year. At the same time, the company's retail gas price spread is expected to remain stable. We believe that due to the macroeconomic environment and the like, the number of new users added by the company will drop slightly in 2024.
Cash flow continues to improve, and dividends per share continue to rise. The company's operating cash flow in 2023 reached 14.41 billion yuan, of which free cash flow was 9.02 billion yuan, and capital expenditure fell to 5.35 billion yuan from the previous year. Stable cash flow provides a certain guarantee for the company's future business development and shareholder return. In recent years, the company's dividend per share has continued to rise. In 2023, the company's dividend per share increased to 0.28 yuan/share, corresponding to the core profit dividend payout rate of 40%, and the compound dividend growth rate per share in the past 3 years reached 16.9%. We believe the company's dividend payout ratio is expected to continue to rise in 2024, and the dividend payout ratio is expected to rise to 45% by 2025.
Valuation forecasts and investment suggestions: Looking ahead to 2024, we believe that due to the macro and industry environment, the decline in the company's new connections will still have a negative impact on future profits, but the overall operation of the company is relatively steady. Based on the company's performance, we adjusted the company's main operating income for FY24-26 to be 1,899.8/2025.9/215.16 billion yuan respectively (the original forecast for 24-25 was 1,950.66/207.953 billion yuan), and the corresponding net profit to mother was 56.66/60.77/6.497 billion yuan (the original forecast for 24-25 was 64.97/6.860 billion yuan). According to the DCF model, the target price was 8.11HKD (original value was 7.96 HKD, +2%) ), maintaining the “better than the market” rating.
Risks: macroeconomic policy risk; risk of natural gas price fluctuations; risk of terminal demand falling short of expectations.