Incidents:
The company published its 2023 annual report and 2024 quarterly report.
In 2023, it achieved operating income of 4.52 billion yuan, an increase of 17.7% year on year; net profit to mother was 240 million yuan, a decrease of 34.38% year on year;
In Q1 2024, revenue of 1,155 million yuan was achieved, a year-on-year decrease of 11.06%; net profit to mother was 687.7 million yuan, a year-on-year decrease of 66.29%.
Price spreads in the gas business have narrowed, and profits have declined
In 2023, with the overall recovery of China's economy, demand for natural gas resumed growth. According to data from the National Development and Reform Commission, the country's apparent consumption of natural gas in 2023 was 394.53 billion cubic meters, an increase of 7.6% over the previous year.
In 2023, the company took advantage of industry recovery opportunities and actively developed the natural gas market through its core asset, the Shen'an Line gas pipeline. In 2023, the gas sector achieved 1,547 billion cubic meters of gas sales, an increase of 32.06% over the same period last year. The gas sector achieved gas sales revenue of 4.1 billion yuan, an increase of 20.68% over the same period last year.
Looking at the entire natural gas supply and pipeline operation business sector, 2023 achieved revenue of 4.28 billion yuan, an increase of 19.58% over the same period of the previous year, accounting for 94.72% of the company's total revenue; realized gross profit of 760 million yuan, a decrease of 13.86% over the same period of the previous year, and gross margin was 17.78%, down 6.90 pcts from the same period last year. In the first quarter of 2024, the company's operating profit was 107 million yuan, a year-on-year decrease of 62.17%, mainly due to the narrowing of gas price spreads.
Looking ahead to 2024, the company has signed a relevant agreement with CNOOC's Gas Power Group. The guaranteed portion of the agreement is sold at a fixed price, and adjusted according to the market price outside of the agreement. The gas sales volume is expected to reach 2 billion square meters this year. The signing of this agreement is expected to guarantee the company's basic earnings during the off-season, and also help CNOOC achieve its overall production increase goals in Shanxi and Shaanxi.
Actively promote the acquisition of upstream resources
The company intends to participate in the restructuring transaction of China Oil and Gas Holdings Co., Ltd., and signed a restructuring document with the relevant parties on the restructuring transaction plan with the conditions of entry into force. The core business of China Oil and Gas Holdings is the exploration and development of domestic coalbed methane. It cooperates with CNPC to explore, mine and produce coalbed methane in the Sanjiao block of the Ordos Basin. The Sanjiao project block has obtained mining rights covering an area of 236.78 square kilometers, which has great potential for development. A successful acquisition will further extend the company's industrial layout. The synergy effect is obvious, and it will also mark an important step for the company in the upstream natural gas source development process.
Asset impairment affects profits in the short term
In 2023, the goodwill of the company Sano Water and Kunwei Gas depreciated, and the total asset impairment was about 122 million yuan, resulting in a decrease in the company's operating profit.
Profit forecast and valuation: Taking into account the volatility of natural gas demand and prices, the company is expected to achieve net profit of 5.23/6.95/963 million yuan in 2024-2026 respectively (the value was 766/ 1,008 million yuan before 24/25), and the corresponding PE is 10.5/7.9/5.7x, respectively, maintaining a “buy” rating.
Risk warning: risks such as industry cycle fluctuations, insufficient upstream resource growth than expected, downstream terminal market development falling short of expectations, participation in China's oil and gas restructuring falling short of expectations, etc.