The current situation of the company
Since the company's annual results were disclosed on March 18 this year, the company's share price has risen by more than 50%, and its attention in the capital market has gradually increased. We believe that this is mainly due to the fact that the new management team has delivered a clearer strategic landscape, planning guidance, and a smoother communication mechanism for its investor relations management team to the market. We have observed that domestic investors' attention and awareness of the company are increasing rapidly.
The year-on-year growth rate of the company's gas volume in May is slightly slower than that of January-April, and we expect the cumulative growth rate of gas volume to remain at about 30% from January to May. Affected by the rise in upstream gas supply and import gas prices this year, we expect 1H21's gas sales margin to decline slightly, mainly due to the poor smooth price of residents, but considering that the company's industrial and commercial customers can accept the favorable price, and the gas volume accounts for a relatively high proportion, we expect the overall impact of gas price increases on the company's gross margin can be controlled.
Comment
The upstream gas source support capacity is expected to be greatly enhanced in the next two years. The Sichuan Weiyuan shale gas project controlled by the company is expected to be put into production by the end of 2022 at the earliest, and the company expects to provide at least 300 million square meters of upstream gas source protection from 2023. In terms of receiving stations, the company expects that in the next two years, taking advantage of the group's investment in two 200000 cubic meter storage tanks of LNG receiving station in Caofeidian, Tangshan, the company will use LNG receiving stations starting from the end of 2022; in addition, the company expects to benefit from the proposed shareholding of Shanghai Gas to have two LNG receiving stations will also provide further protection for the company's future LNG import gas sources. The company plans to purchase 10 / 1.5 billion cubic meters of gas in 2021-23, which is expected to save the cost of gas purchase.
Extension business is expected to usher in exponential growth during the 14th five-year Plan. Since the beginning of this year, the company has transformed its Hong Kong and Chinese stores across the country into a "home-to-home life service center", conducting a series of experiential activities around the theme of healthy meals to attract people, and organizing health consultation activities; at the same time, diverting people to online such as "APP" to purchase related food and other products. According to the company's plan, this year is the polishing period of the new business. The target is to transform 20 stores, with an expected revenue of 100 million yuan, a business development period of 2022-23, a target of 80 stores, an expected revenue of 600 million yuan, and a business maturity period of 2024-25. The target is to transform stores to 200 stores, and the expected revenue is expected to increase significantly to 2.5 billion yuan. Heating business is also expected to usher in rapid development. The company is optimistic about the demand market for winter heating of southern urban residents in the future, and will strive to promote gas-fired separate and distributed heating business during the 14th five-year Plan period. The company expects to contribute more than 2 billion cubic meters of gas volume increment in five years' time.
Valuation and suggestion
Keeping the profit forecast unchanged, taking into account the considerable growth of the company's extension and heating business, we raised our target price by 13% to HK $6.2. The target price corresponds to 11 times 2021 and 10 times 2022 earnings, with 21 per cent upside compared to the current share price. The current share price corresponds to 9 times 2021 price-to-earnings ratio.
Risk.
The growth rate of gas volume is not as good as expected; the incentive plan is not as good as expected.