Core views:
A high-quality urban fuel operator in Foshan, with a CAGR of 18% in the past five years. The company has been deeply involved in the urban combustion business for more than 30 years, and has obtained pipeline gas franchises in 13 regions in and outside of Foshan. The gas sales volume of the urban fuel business grew rapidly, and the supply chain business was actively promoted, driving revenue growth from 5.094 billion yuan to 25.538 billion yuan (CAGR = 38%) in 18-23, and net profit to mother increased from 0.362 billion yuan to 0.844 billion yuan (CAGR = 18%). The performance has been steady in recent years. The ROE-weighting reached 14.9% in '23 (+1.4ptc year on year), and abundant cash flow guarantees dividends. The dividend rate has remained at 65% for the past five years. The current dividend rate is over 5% based on the projected dividend for 24 years.
Demand increased urban emissions, and profit rebounded smoothly. Natural gas consumption resumed steady growth in '23, and the company's gas sales volume was 4.569 billion square meters (+12.9% year over year). In the medium to long term, with the advancement of urbanization, the conversion of industrial coal to gas, and the increase in gas consumption in power plants, demand increases in urban fuel emissions. Foshan plans to have a CAGR of 20-25% and 10-15% for natural gas consumption during the 14th Five-Year Plan and the 15th Five-Year Plan period.
In terms of gas prices, the policy promotes smooth price implementation. The maximum price of natural gas for non-residents in Foshan was raised to 4.28 yuan/square meter in July '22, but it is still low compared to surrounding cities. On the gas source side, domestic and foreign natural gas prices have been falling steadily in 24 years. The gross margin in the company's urban combustion business is expected to be repaired, and volume and price increases are stable.
The supply chain business accounts for 34% of revenue, and new energy and extension businesses are flourishing. The supply chain business leverages energy infrastructure and resource advantages to form the two main lines of petrochemical and natural gas supply. In '23, the supply chain business achieved revenue of 8.65 billion yuan (+170.5% year over year), accounting for 34% of total revenue. At the same time, we are actively expanding new energy businesses such as hydrogen energy, heat energy, photovoltaics, and energy storage. In 23 years, the amount of hydrogen was increased by more than 0.07 million kilograms, the heating was about 1.52 million gigajoules, and the power generation was about 35 million kilowatt-hours.
Profit forecasting and investment advice. The estimated net profit for 24-26 will be 1/1.11/1.21 billion yuan, respectively, corresponding to the latest PE valuation of 12.3/11.0/10.1 times. Urban fuel business profits rebounded, supply chain business scaled up, and steady performance guaranteed dividends. Reference is that comparable companies gave the company 15 times PE in 2024, corresponding to a reasonable value of 11.64 yuan/share, covered for the first time, and gave it a “buy” rating.
Risk warning. Purchase price fluctuation risk; raw material price fluctuation risk; policy implementation risk.