According to the Zhongtong Finance APP, CICC released a research report stating that it maintains a 'outperform industry' rating for Kunlun Energy (00135), with unchanged profit forecasts for 2024 and 2025, and a target price of 8.5 Hong Kong dollars. The company announced its 1H24 performance: revenue of 92.9 billion yuan, +6.7% YoY; net income attributable to equity holders of the Company of 3.305 billion yuan, +2.6% YoY, corresponding to an earnings per share of 0.38 yuan, slightly exceeding the bank's expectations, mainly due to the better-than-expected profitability of the LNG processing and storage/LPG sales sectors. The company plans to distribute a mid-term dividend of 0.16 yuan per share, corresponding to a 43% dividend payout ratio for 1H24, in line with previous guidance.

CICC's main points are as follows:

The year-on-year decline in gross margin may be mainly due to structural factors.

In 1H24, the company's gross margin declined year-on-year, lower than market expectations. The bank believes that the main reason for the decline in price differentials may be 1) Disposal of some high-margin (over 1 yuan/cubic meter) gas station business (1H24 company's gas station gas volume decreased by 34.6% YoY), 2) A relatively high proportion of large industrial customers with lower price differentials in the newly added commercial gas volumes (the bank estimates 0.2-0.3 yuan/cubic meter); excluding the impact of these two factors, the bank estimates that the company's overall gross margin remains reasonably stable.

The growth rate of gas volume in 2H24 is expected to continue to lead the industry.

Leveraging the advantages of industrial chain integration and the support of the parent company's resources, the company's gas sales volume growth rate has significantly outperformed its peers since 2019, steadily increasing market share. Looking ahead, the bank believes that benefiting from macroeconomic recovery and the improvement in the capacity utilization of customers in the power/electrical utilities/photovoltaic glass/petrochemical industries developed by the company in recent years, the gas volume growth rate of the company in 2H24 is expected to continue to maintain around 10%.

The profit potential of the 2H24 LNG processing and storage sector is expected to continue to improve.

Benefiting from the increase in load rate, the company's pre-tax profit of the LNG processing and storage sector in 1H24 increased by +22.9% year-on-year to 1.65 billion yuan. Based on the current domestic supply and demand situation for natural gas, the bank determines that the average load rate of the company's LNG receiving stations/LNG plants in the second half of the year still has a significant potential for sequential improvement, and the profit potential is expected to continue to improve.

The LPG sector's profit is expected to maintain steady growth.

Through methods such as expanding industrial direct supply customer development, the company's pre-tax profit in the LPG sector achieved rapid growth in 1H24. Looking ahead, benefiting from the increase in the company's LPG resources, it is believed that the company's LPG business profit scale is expected to maintain steady growth in the medium to long term.

Risk: A significant drop in LNG prices, and macroeconomic recovery falls short of expectations.