FY24's adjusted net profit is basically in line with our expectations
The company announced FY24 results: revenue of HK$81.41 billion, -11.5% YoY; net profit of HK$3.19 billion, corresponding to earnings per share of $0.59 billion, -25.8% YoY, adjusted net profit of HK$3.97 billion, -4.3% YoY. The adjusted net profit is basically in line with our expectations. Among them, 2HFY24's adjusted net profit was HK$1.51 billion, +76% YoY.
FY24's natural gas retail sales volume was 23.51 billion square meters, +2.2% YoY, retail gas gross margin 0.50 yuan/square meter, YoY +0.08 yuan/square meter. Additional residents connected 1.657 million households, -28% YoY. Furthermore, the company plans to pay a final dividend of HK$0.35 per share and a dividend of HK$0.50 per share for the full fiscal year, which is the same as the previous year.
Development trends
FY25 gas retail earnings are expected to continue to recover. Benefiting from the transmission of residents' gas costs and declining natural gas procurement costs, the profit situation of FY24's natural gas retail business improved significantly over the same period last year. Taking into account the current macroeconomic growth and resource price situation, the management gave guidelines for FY25 gas volume growth rate +5% YoY and gross margin of 0.53 yuan/square meter. We believe that if LNG prices remain relatively stable during the heating season, the company's FY24 gross margin may exceed management guidelines.
More conservative capital expenditure guidelines. Management expects the FY25 capital expenditure scale to be further reduced year over year (vs FY24 capital expenditure of approximately HK$7 billion). We believe this also suggests that the company is gradually shifting its business growth model from simple scale in the past (large-scale capital expenditure to drive mergers and acquisitions and connections) to match guaranteed profits and cash flow. We believe this also lays a good foundation for the company to achieve medium- to long-term sustainable development.
Market concerns about the company's business conditions may have basically been reflected in stock prices. The company's stock price has recovered by more than 70% since 2021, and the valuation has been revised down from about 20x P/E to about 10x P/E. We believe that the current stock price may have basically reflected the reality that the company's FY22-FY24 rural coal-to-gas business profits and cash flow are under pressure. Although the market has recently begun to gradually agree that the company is expected to gradually improve the quality of the company's cash flow and balance sheet by strictly controlling capital expenditure and increasing the collection of subsidies receivable, there are still concerns about the space and sustainability of improvements.
Profit forecasting and valuation
Considering the strong downward pressure, we lowered the FY25 profit forecast by 15% to HK$4.31 billion, and introduced the FY26 profit forecast of HK$4.79 billion for the first time. The current stock price corresponds to FY25/FY269.0x/8.1x P/E. Considering that the company's free cash flow situation is expected to continue to improve, maintaining an industry rating and a target price of HK$8.80, corresponding to FY25/FY26 11.1x/10.0x P/E, with 23.3% upside compared to the current stock price.
risks
Residents' smooth price progress fell short of expectations, natural gas prices fluctuated sharply, and the decline in real estate exceeded expectations.