On the evening of August 28, the company released its 2024 semi-annual report. 1H24 achieved revenue of 13.78 billion yuan, or -9.5% year-on-year; realized net profit of 0.7 billion yuan after deduction, or +17.8% year-on-year. 2Q24 achieved revenue of 6.92 billion yuan, or -9.5% year-on-year; realized net profit of 0.43 billion yuan after deduction, +19.0% year-on-year.

Strong growth in gas volume in the Greater Bay Area offset the decline in gas volume in power plants. 1H24 gas sales volume was +8.3% year-on-year. 1Q24/2Q24 companies sold 1.31/1.43 billion worth of gas respectively, +9.7%/+7.0% year-on-year respectively. By region, 1Q24/2Q24 in the Greater Bay Area achieved 0.36/0.37 billion square meters of urban fuel sales, respectively, +4.7%/+21.6% year-on-year; 1Q24/2Q24 in other regions completed 0.56/0.53 billion square meters of urban fuel sales, respectively, and +12.6%/4.6% year-on-year respectively. The gas sales volume of the 1Q24/ 2Q24 power plants reached 0.25/0.42 billion square meters respectively, +21.7%/-11.3% year-on-year respectively. Affected by continuous precipitation in the southern region in 2Q24, while demand for electricity in Guangdong Province was weak, external electricity input increased sharply year on year, squeezing the power generation space of gas units in the province, causing gas demand for power plants to decline. Meanwhile, 1H24 Shenzhen maintained rapid growth in industrial value added of +12% year-on-year; benefiting from the macroeconomic climate, 2Q24's urban gas sales in the Greater Bay Area surged 21.6% year on year, fully offsetting the impact of the decline in gas sales at power plants.

The downturn in costs is mainly driving the correction of gas sales gaps. According to estimates, the average price of gas sold in the company's 1H24 pipeline was about 3.22 yuan/square meter, down about 0.05 yuan/square meter from the same period last year, or 1.6%. Meanwhile, the pipeline gas business achieved a gross profit margin of 12.4% during the same period, an increase of 3.6 pct over the same period, mainly due to the fact that 1H24 global gas supply and demand remained uneven, and the decline in international gas price shocks led to a decline in the company's comprehensive gas procurement costs. In addition, the average wholesale price of 1H24's natural gas was about 3.3 yuan/square meter, down about 32.8% year on year. Considering the high degree of marketization of natural gas wholesale and the higher frequency of price and cost linkage, the side reflects a decrease in the average price of gas sales in the company's pipeline gas or an increase in the share of industrial and commercial gas sales due to a higher degree of marketization of pricing.

The decline in sales volume and price of photovoltaic film dragged down revenue by 6.9 pct. Affected by problems such as the slowdown in global PV installed capacity growth, rising barriers to international trade, and domestic grid consumption, the PV industry has entered the production capacity clearance stage, and the 1H24 PV industry is showing a “price reduction and increase” trend.

Profit Forecasts, Valuations, and Ratings

The net gas price plus international gas price for Shenzhen residents returned to a rational range in '24, and the company's gross gas sales gap is expected to continue to be repaired. The company is expected to achieve net profit of 1.77/1.95/2.17 billion yuan in 24-26, and EPS of 0.61/0.68/0.76 yuan respectively. The PE valuation corresponding to the current price is 11 times, 10 times, and 9 times, respectively, to maintain an “increase in holdings” rating.

Risk warning

Gas source price fluctuations exceeded expectations; downstream demand for photovoltaic film and gas fell short of expected risks, etc.