Incident: The company announced its 2024 interim results. The first half of the year achieved revenue of 13.78 billion yuan, a year-on-year decrease of 9.48%, and realized net profit to mother of 0.738 billion yuan, an increase of 13.64% over the previous year; net profit after deducting non-return to mother was 0.703 billion yuan, an increase of 17.76% year-on-year.

The gross margin of the pipeline gas business increased significantly year-on-year, compounded by an increase in gas sales, which led to a steady increase in the company's overall performance. 2024H1's pipeline gas business achieved revenue of 8.016 billion yuan (up 5.18% year on year), accounting for 58.17% of revenue and 43.57% of gross profit, which is the company's largest source of profit. The gross margin of gas in the 2024H1 pipeline reached 12.42%, an increase of 3.57 percentage points over the same period last year. In terms of gas sales, pipeline gas sales volume was 2.488 billion cubic meters, up 6.87% year on year, and was mainly due to an increase in urban gas sales other than power plant gas sales. Driven by both quantitative and profit factors, the gross profit of the pipeline gas business increased by 47.55% year-on-year, driving a steady increase in the company's overall performance.

The gross margin of the smart service business increased year on year. Revenue declined but total gross profit increased year on year, replacing gas engineering and other businesses as the second largest source of gross profit. The company's smart service business mainly consists of gas value-added business, information service business, and gas equipment business. In the first half of 2024, the gross margin of the smart service business reached 55.71%, up 16.7 percentage points from the same period last year and 6.2 percentage points respectively. Although revenue declined slightly by 5.06% year on year due to the end of the “bottle change” project in Shenzhen, total gross profit increased by 35.54% year on year; the share of gross profit increased from 18.55% in the same period last year to 24.92%. With the contraction of gas engineering and other sectors, smart services have surpassed it as the second largest source of gross profit. Given that the company has sufficient downstream customer resources, it is expected that the importance of the smart service business will further increase.

Although the decline in PV film sales dragged down revenue, the negative impact on the net profit of the return home was limited. The company's 2024H1 revenue declined by 1.443 billion yuan year on year, mainly due to a decrease of 1.046 billion yuan in revenue from the photovoltaic film business and 0.376 billion yuan in wholesale revenue from gas resources.

As far as the photovoltaic film business is concerned, the 10.73% year-on-year decline in sales in the first half of the year was the main reason for the decline in revenue. The revenue share fell from 19.33% in the same period last year to 13.76% in the current period. However, judging from the impact on the net profit of the PV film business entity, Swick 2024H1, achieved net profit of 0.041 billion yuan (0.085 billion yuan in the same period last year). According to the 49.94% shareholding ratio (50.33% in the same period last year), PV film only had an impact of -0.022 billion on the net profit of the mother. We believe this is the core reason for the reverse change between revenue and net profit to the mother.

Gas engineering and other businesses, such as petroleum gas wholesale, natural gas wholesale, and power generation, account for about 17.89%/-0.38%/3.45%/3.07%, respectively. The first two are shrinking and are expected to gradually reduce their impact on the company's performance; the latter two only fluctuate slightly due to factors such as natural gas prices. As gas sales increase and downstream customer resources are further developed, we judge that pipeline gas and smart services are expected to support a steady increase in performance.

Profit forecast and valuation: We maintain the forecast of the company's 2024-2026 net profit of 1.518, 1.649, and 1.8 billion yuan, respectively. The current stock price corresponding to 2024-2026 is 12, 11, and 10 times PE, respectively, maintaining a “buy” rating.

Risk warning: Natural gas consumption growth falls short of expectations, risk of natural gas price fluctuations, and competition risk in the photovoltaic film industry.