Benefiting from the increase in natural gas sales volume and continuous optimization of the sales structure, 2024H1's revenue and profit increased across the board. The company achieved revenue of 92.922 billion yuan in 2024H1, up 10.5% year on year; profit before tax of 7.249 billion yuan, up 6.74% year on year; net profit to mother of 3.305 billion yuan, up 2.6% year on year; the company plans to pay 16.41 yuan/share for the first time, with a dividend ratio of 43%. Looking forward to the company's plan to further increase the dividend ratio to 45% in 2025.

The company is actively expanding to industrial users, and the gas retail business is growing strongly. 2024H1 sold 26.438 billion cubic meters of gas, up 10.6% year on year. Among them, retail gas/wholesale gas volume increased 10.3%/11.0% year on year to 16.302/10.136 billion cubic meters, and retail gas volume of industrial/commercial/resident/ gas stations increased 16.8%/5.5%/-34.6% year on year to 13.265/2.091/0.947 billion cubic meters. It is worth noting that the company's sales structure continues to be optimized, and the share of industrial and commercial gas sales in retail gas volume increased by 4.6 pct year-on-year. This increase was mainly due to the growth of “three new” industrial users (new energy vehicles, lithium batteries, photovoltaic products). In terms of number of users, the company added 0.449 million users to 16.053 million cumulative users during the performance period, further stabilizing its leading position in the terminal market.

Both the LPG and LNG businesses have achieved cost reduction, efficiency and profit growth, and exploration and production businesses are under pressure. 1) Although LPG sales fell slightly by 0.4% year on year to 2.9258 million tons, and revenue fell 6.7% year on year to 12.932 billion yuan, the company successfully added 6 new industrial direct supply users to optimize operating efficiency, profit before tax increased 32.6% to 0.561 billion yuan year on year, and gross margin increased 1.45 pct year on year. 2) Revenue from the LNG processing and storage business increased 9.1% year on year to 5.662 billion yuan, and profit before tax increased 22.9% year on year to 1.648 billion yuan. Tangshan and Rudong terminals achieved LNG gasification, and the loading volume increased 5.9% year on year to 7.77 billion cubic meters. The average load rate increased 3.6 pct to 85.4% year on year, and the load rate is expected to increase further to 90% in 2024. The processing load rate of the 14 LNG plants increased 19.5 pct to 58.4% year on year, and self-production and contract processing volume increased 11.5%/92.5% year over year to 0.466/1.307 billion cubic meters, respectively. The increase in contract processing volume was mainly due to parent company demand. 3) The exploration and production business was due to the termination of the company's Liaohe Oilfield and Peru Oilfield exploration contracts. Revenue fell 85.5% year over year to 0.088 billion yuan, and profit before tax fell 39.8% year on year to 0.174 billion yuan. In terms of crude oil sales, 4.04 million barrels of crude oil were sold, down 16.5% year on year, and the average price of crude oil rose by 2.15 US dollars/barrel to 67.77 US dollars/barrel.

Valuation forecasts and investment suggestions: Looking ahead to 2024, we believe that the macro and industry environment are still facing challenges, but based on the continuous optimization of the company's sales structure, we maintained the company's main operating income of 189.98/202.59/215.16 billion yuan in FY24-26, with corresponding net profit to mother of 5.666/6.077/6.497 billion yuan, and the target price is 8.11 HKD/share, maintaining a “superior to the market” rating.

Risks: macroeconomic policy risk; risk of natural gas price fluctuations; risk of terminal demand falling short of expectations.