The stock price fell after the interim report, which should be due to excessive market concerns about the company's dividend payment policy. The company's stock price performance was weak after the results. We believe that some investors reduced their holdings of Xinao because Xinao's mid-term dividend payments were slightly less than surprising to their peers. We think this is excessive concern. In fact, in the first half of the year, when core profit fell 17% year on year, New Olympics still raised its interim dividend by 1.6% year on year, and the dividend payout ratio for the first half of the year increased 3.5 percentage points year on year to 20.6% year on year. At the same time, Xinao has set a dividend payout ratio guideline of about 44% for the whole year, and an interim goal of gradually increasing the dividend ratio to 50% over the next 3-4 years. This should be a clear goal for shareholder returns.

Start a new repurchase program. On September 23, the company announced a HK$0.3 billion repurchase and an additional HK$0.3 billion share purchase for the employee share reward program (HK$0.6 billion in total). In the same period last year, the company used the maximum share purchase plan of 0.1 billion US dollars. We believe that in the current undervaluation situation, introducing a repurchase plan would be a good help in dealing with stock price support.

The increase in gas sales in July-August continued the trend of the first half of the year. We recently made an update with the company. We estimate that the company's retail gas volume will maintain a year-on-year increase of about 5% in July-August of this year, and industrial and commercial gas usage will maintain an increase of more than 5% during the period. As for the gross margin in gas sales, we still expect a year-on-year increase of RMB 0.54 per party, with a year-on-year increase in net prices, and an 11% year-on-year increase in segmented gross profit. Compared with the gross margin of gas sales, the company is currently focusing on improving the gross margin of the retail gas sector. Currently, we expect the company's gross margin in the retail gas sector to remain at about 11% in 2024-26.

The profit inflection point has been reached, and the dividend rate is currently the highest in the industry. We reaffirm that the main reason we are optimistic about Xinao is that the company's profit structure has stabilized. It is expected that the share of connection projects in the company's gross profit structure will drop to 14%/13% in 2024/25, while the share of Pan-Energy and Smart Home divisions will rise to a total of 37%/40%, improving the company's profit stability. According to LNG trade as the core profit scale, 2024 will be a profit low, and 2025/26 will return to 10.6%/10.0% year-on-year growth. At the same time, the current expected dividend rate of 6%/7% for 2024/25 is also the highest among our covered gas companies. We believe that the decline in stock prices after the interim results has created a good buying opportunity, maintaining the target price of HK$65.1 and the purchase rating.