Key points of investment

Incident: The company released its 2024 three-quarter report. In the first three quarters of 2024, the company achieved operating income of 98.725 billion yuan, an increase of 2.93% year on year; net profit to mother of 3.491 billion yuan, up 12.51% year on year; net profit after deducting non-return to mother of 2.945 billion yuan, an increase of 42.01% year on year.

Retail gas price differences have been fixed, and direct sales have grown steadily. Net profit to mother for the first three quarters of 2024 was 3.491 billion yuan, up 12.51% year on year; core profit was 3.816 billion yuan, down 18.35% year on year; net profit from mother for the third quarter of 2024 was 0.961 billion yuan, up 6.89% year on year; core profit was 1.118 billion yuan, down 25.74% year on year. The performance fell short of our expectations, mainly due to fluctuations in the volume and price of the platform's trading gas. By business: 1) Natural gas business: the gas volume traded on the platform in the first three quarters was +10.7%/+4.8% to 4.062/18.819 billion square meters, domestic/international platform gas volume was +14.2%/+4.9% respectively to 2.597/1.465 billion square meters, and resident/industrial and commercial gas sales volume in retail gas was +3.4%/+5.7% to 3.748/14.843 billion square meters respectively. Retail sales are expected to grow steadily throughout the year, achieving the target growth rate of 5%. In the third quarter, the platform traded gas volume -5.4% to 1.357 billion square meters, domestic sales volume -24% to 0.86 billion square meters, and international sales volume +64% to 0.5 billion square meters. Domestic natural gas demand remained strong in the third quarter, and domestic sales volume and price fluctuations were mainly due to changes in the gas source structure. 2) Engineering construction and installation business: 1.102 million new residential users were connected in the first three quarters, -19.1% year-on-year; the gas volume of commercial and commercial users was added 11.133 million square meters/day, -12.6% compared to the same period last year. 3) Comprehensive energy business: Sales volume in the first three quarters was +21.4% year-on-year to 29.668 billion kilowatt-hours. 4) Infrastructure operation business: The loading volume of receiving stations reached 1.73 million tons in the first three quarters, +33.1% year on year; in the third quarter, the loading volume reached 0.71 million tons, +73.2% year over year. The Zhoushan Phase III project will add a processing capacity of 3.5 million tons/year, and the total processing capacity will exceed 10 million tons/year after completion in the fourth quarter of 2025.

Demand for natural gas is growing steadily, and the integrated layout helps the company develop steadily. Demand in the natural gas industry has been growing steadily under the energy substitution trend, and domestic natural gas demand has recovered 9% from 2023 to 2030. In 2022, the Zhoushan LNG terminal was injected, and the company formed an integrated layout of upstream gas source+midstream storage and transportation+downstream customers. 1) Air source: International+domestic dual resource pool, continuous optimization. By the end of the third quarter of 2024, the company had signed more than 10 million tons/year for the Changxie Association. 2) Storage and transportation: Increase transportation & gas storage layout. As of 2024/6/30, the company has 10 ships with international capacity and 5.5 flexible use of the State Grid window. The Zhoushan Phase III project will add a processing capacity of 3.5 million tons/year, and the total processing capacity will exceed 10 million tons/year after completion in the fourth quarter of 2025. 3) Customers: Downstream customers are of high quality, and the favorable price mechanism is improving. 2024H1's retail gas gross margin was 0.54 yuan/square meter, an increase of 0.02 yuan/square meter over the previous year, reaching 59%; with the gradual implementation of the favorable price policy, the company's price difference is expected to be further repaired.

Profit forecast and investment rating: Dividend distribution+special dividend. The 2024-2025 dividend is not less than 1.03/1.14 yuan per share, corresponding to the 2024-2025 dividend rate of 5.4%/5.9% (valuation date 2024/10/25), showing a margin of safety. The smooth price continues to advance, and the company's retail gas price difference is expected to be further repaired; the volume of trading on the platform continues to grow, and the profit from unilateral resale narrows due to the return of global gas prices. We lowered the company's net profit to mother in 2024-2026 to 5.46/6.06/7.82 billion yuan (original value 6.04/7.3/8.27 billion yuan), EPS 1.76/1.96/2.53 yuan, corresponding to PE 10.9/9.8/7.6 times (valuation date 2024/10/25), maintaining the “buy” rating.

Risk warning: economic recovery falls short of expectations, safe operation risks, exchange rate fluctuations