Key points of investment
Results for the full year of 2019 fell slightly short of expectations, and dividends continued to grow. The Company achieved revenue of HK$1.45 billion in 2019, a year-on-year decrease of 12.6%, and shareholders' net profit of HK$1.28 billion, an increase of 1.8% over the previous year. The company's 2019 performance fell slightly short of market expectations, mainly due to the decline in the gas transmission volume of the Yuji pipeline, Huade Petrochemical was affected by downstream refinery maintenance and the depreciation of the RMB exchange rate. The company plans to pay a final dividend of HK12 cents per share (2018H2:10 HK cents), with a total dividend of 20 HK cents per share (2018:15 HK cents), with an annual dividend rate of 38.7% (2018:29.5%).
The performance of the Yuji Pipeline declined due to factors such as the commissioning of the new pipeline. The company's Yuji Pipeline achieved revenue of HK$750 million in 2019, a year-on-year decrease of 11.0%; operating profit of HK$270 million, a year-on-year decrease of 30.0%; piping volume of 4.0 billion square meters, a decrease of 14.1% over the previous year; and the average pipeline transportation cost was HK$0.216 per square meter, which was basically the same as the previous year. The decline in the performance of the Yuji pipeline is mainly due to (1) after the first phase of Sinopec's “Eancang” gas pipeline project was put into operation at the end of last year, some LNG imports were transferred from Qingdao to the Tianjin receiving station, which reduced the gas volume of the Yuji pipeline compared to the previous year, but due to the close transportation distance of this part of the gas, there was little impact on the overall pipeline price; (2) the decline in gas production from CNPC; (3) the impact of the depreciation of the RMB exchange rate.
The overall performance of the crude oil terminal business was good. (1) The subsidiary Walde Shihua achieved a throughput of 11.89 million tons, a year-on-year decrease of 5.3% and a 9.1% decrease in revenue, mainly affected by downstream Guangzhou Petrochemical maintenance and changes in the RMB exchange rate; (2) the six joint operated/joint terminals achieved throughput of 253 million tons, an increase of 6.6% over the previous year; and achieved investment income of HK$966 million, an increase of 9.9% over the previous year.
Our opinion: We lowered the company's revenue from 2020 to 2021 by 5.7% and 11.8%, respectively, and also lowered the company's net profit from the mother in 2020 to 2021 by 3.9% and 7.6%, respectively, mainly by lowering the gas transmission volume of the Yuji Line and the pipeline prices starting in 2021, and introducing the forecast for 2022. We expect the Company's revenue to be HK$1.51 billion, $1.43 billion, and HK$1.45 billion in 2020-2022, and net profit of HK$1.43 billion, $1.43 billion and HK$1.49 billion respectively. The 2020 PB corresponding to the stock price on March 30, 2020 was 0.54 times. Although considering the uncertainty of the company's Yuji Pipeline divestment method, it is still underestimated. We maintain the company's “buy” rating and maintain the target price of HK$4.31, corresponding to 0.8x PB in 2020.
Risk warning: 1. Pipeline divestment pricing or method falls short of expectations; 2. Downstream refinery demand is declining; 3. Dividend payments fall short of expectations