Maintaining the “gain” rating: The company's gas sales volume is expected to increase, and there is still room to fix the gross margin. Maintain the 2024-2026 EPS of 0.58/0.65/0.74 yuan, maintain the target price of 9.63 yuan, and maintain the “gain” rating.

Incident: The company disclosed the semi-annual results report. The expected 1H24 revenue was 13.78 billion yuan, -9.5% year over year; net profit to mother was 0.74 billion yuan, +13.6% year over year; looking at the single quarter, 2Q24 revenue was expected to be 6.92 billion yuan, -9.5% year over year; net profit to mother was 0.46 billion yuan, +18.2% year over year. The performance is basically in line with our expectations.

The increase in gas volume was compounded by gross margin correction, and the company's 2Q24 performance growth rate was impressive. The company's 2Q24 pipeline gas sales volume was 1.32 billion cubic meters, +2.8% year on year; natural gas wholesale volume was 0.112 billion cubic meters, +103.6% year over year. According to user types, in 2Q24, urban gas sales in Shenzhen were 0.37 billion square meters, +21.6%; urban gas sales outside Shenzhen were 0.53 billion square meters, +4.5% year over year; power plant sales volume was 0.42 billion cubic meters, compared to -11.3% year on year. We speculate that the decline in power plant sales is related to improvements in incoming water and hydropower generation squeezing gas and electricity generation space. Net profit margin for 2Q24 was 6.7%, +1.6 ppts year over year. We speculate that the company's 2Q24 performance growth mainly benefited from the increase in gas volume and the correction of gross margin in Shenzhen.

Demand for gas consumption is expected to increase, and there is still room for correction of gross defects. The company has abundant gas reserves. In March 2024, it signed a new 10-year long-term agreement with CNPC for a gas volume of 9.69 billion cubic meters. In June 2024, the first 9F gas-steam combined cycle cogeneration unit of the Shenzhen Thermal Power Gaobu Power Plant and the Shenzhen Energy East Power Plant Phase II Unit 4 were put into operation. With the commissioning of the new units, the company's downstream gas demand is expected to increase. Currently, overseas natural gas prices are still in a downward channel (1H24, the average CIF price of Chinese LNG is 10.3 US dollars/million British heat, -24.8% year-on-year). We believe that the cost-side improvement and superposition surplus price process is progressing, and there is still room for upward correction of the company's gross margin, and an increase in profit can be expected.

Risk warning: The rise in gas prices exceeds expectations and compresses profits, downstream gas demand falls short of expectations, photovoltaic film profits fall short of expectations, etc.