On February 10th, China Bank International released the latest research report of Tianlun Gas (01600). After a field visit to Tianlun Gas, the bank said that based on the recovery of industrial and commercial natural gas sales, strong value-added services and the huge growth potential of township energy, Tianlun Gas is given a buy rating, and the target price rises to HK $6.55.
Due to the relaxation of epidemic control, industrial and commercial natural gas sales have recovered rapidly since December 2022, and potentially suppressed industrial and commercial natural demand is likely to be further released in 2023, the bank said. As Tianlun gas's industrial and commercial sales account for more than 60% of its total natural gas sales, the recovery of industrial and commercial natural gas demand is of vital importance to the company. China Bank International visited Xuchang area (that is, Tianlun gas franchise area, after Hebi area, the second area with urban gas franchise). The bank expects industrial and commercial gas sales to grow by double digits by 2023. In addition, as a better economy may also strengthen the ability of companies to accept rising natural gas prices, the potentially dampened industrial and commercial natural gas demand caused by rising natural gas prices will be further released.
The gross margin continues to increase. The bank said its gross margin increased to about Rmb0.5 in the third quarter of 2022 as the company implemented aggressive price measures and diversified its gas sources, while overall gross margin returned to levels similar to those of previous years in the second half of 2022. In addition, because Tianlun gas industrial and commercial sales account for more than 60% of its total natural gas sales, and industrial and commercial users usually conduct price compliance faster than residential users, the bank believes that the company's gross margin will further increase in 2023.
Using the gas-electricity cooperation mode, the residential photovoltaic business of Tianlun Gas has great potential for development. During the international investigation of China Merchants Bank, it is found that the company has obvious regional advantages in residential photovoltaic construction: 1) 2 million gasified rural users and mature localization operation team; 2) good lighting conditions; 3) rural users are very willing to rent roofs; 4) the gas-electricity synergy model brings common interests to partners and enables the company to invest in light assets with great flexibility.
To sum up, considering the positive recovery of natural gas sales in 2023, higher gross margin, sound value-added services and potential growth of township energy, China Bank International believes that the valuation of Tianlun Gas is expected to improve. In addition, the bank mentioned that the company's management's long-term share buyback also means strong confidence in the company's business.
Tianlun Gas led the industry against the market yesterday, with its share price rising 4.38% to HK $5.24, making it an outstanding performance in the Hong Kong gas supply industry.