occurrences

The company published its 2024 semi-annual report. In the first half of 2024, the company achieved operating income of 54.59 billion yuan, a year-on-year increase of 0.9%; profit attributable to shareholders was 2.57 billion yuan, a year-on-year decrease of 22.8%; achieved core profit of 3.26 billion yuan, and domestic basic business core profit increased 9.5% year-on-year to 3.08 billion yuan.

Retail volume grew steadily, and gross profit increased year-on-year

In terms of retail gas volume, in the first half of 2024, the company's retail gas volume increased 4.5% year-on-year to 12.71 billion cubic meters. Among them, industrial and commercial gas sales increased 5.4% year over year to 9.56 billion cubic meters. At the same time, the company continues to expand its customer base. In the first half of the year, businesses opened 7.262 million square meters/day, and private users added 0.775 million new households. The growing number of customers will lay a certain foundation for future gas volume growth.

In terms of smooth prices, 21 new project price adjustments were added in the first half of the year, including Quanzhou, Liaocheng, and Yancheng. A total of 86 projects were completed, and the residents' price adjustments increased to 59%. Continued progress in smooth price work will help the company recover from retail sales shortfalls. The gross profit of the natural gas retail business increased 9.9% year-on-year to 3.14 billion yuan in the first half of the year.

Profit structure gradually optimized: In the first half of 2024, the gross profit contribution of the engineering installation business narrowed from 21% in the first half of 2023 to 13%. The profit contribution of continuing businesses, including natural gas sales, Pan-Energy, and Smart Home, continued to increase, and the profit structure was gradually optimized and improved.

Pan-energy and value-added business: maintaining a high growth rate

Pan-energy business: In the first half of the year, the company signed 707 new pan-energy projects, put into operation 36 new key projects, and operated a total of 332. Pan-Energy achieved 19.74 billion kilowatt-hours of sales, a year-on-year increase of 26%, a 17% increase in gross profit, and a 24.1% increase in gross profit, including joint ventures.

The company continues to promote Pan-Energy's micro-grid customer acquisition model, penetrating into customer terminals, and the Pan-Energy business continues to develop healthily. The company estimates that Pan-Energy's sales volume will increase by more than 20% throughout the year.

Smart Home Business: In the first half of the year, the number of C-side trading customers of the company's Smart Home business increased by 5.2% year-on-year to 2.683 million; the unit price of C-side customers increased 32.1% year-on-year to 325 yuan/household. The impressive performance of C-end users led the Smart Home business to achieve revenue of 2.08 billion yuan in the first half of the year, an increase of 22.4% over the previous year; gross profit of 1.4 billion yuan, an increase of 23% over the previous year (including joint ventures, a gross profit increase of 29.2%).

In the second half of the year, the company will continue to use intelligent upgrade platforms and product systems to enhance customer experience and expand product sales. The company estimates that the gross profit of the Smart Home business will increase by more than 20% throughout the year.

Continuously increase dividend payout ratio and optimize debt structure

In terms of dividends, the company paid an interim dividend of HK65 cents, up 1.6% year on year. The annual dividend payout ratio is expected to be around 44%, maintaining an annual growth rate of 3-4%.

Debt structure: As of the end of the first half of 2024, the company's interest-bearing debt was about 19.83 billion yuan, down 2.09 billion yuan from 21.92 billion yuan at the end of 2023. The net debt ratio fell to 24.3%.

At the same time, the company also hedged the foreign exchange risk exposure of long-term US dollar debt. By the end of the first half of 2024, the hedging ratio had reached 83.4%, reducing the risk of exchange rate fluctuations.

Profit forecast and valuation: The gradual return of the market to normal in 2024, the gradual recovery of downstream natural gas demand, and the continued promotion of the favorable price policy will have a positive impact on the company's gross sales margin, but the market is still in a fragile balance and faces many uncertainties. We expect the company's net profit to be 6.8, 7.59, and 8.27 billion yuan respectively in 2024-2026 (previous values of 6.98, 7.67, and 8.37 billion yuan), corresponding to PE of 8.5, 7.7, and 7 times, respectively, to maintain the “gain” rating.

Risk warning: macroeconomic downside risks; upstream gas prices rise above expectations; downstream surplus prices fall short of expectations; international gas prices fluctuate beyond expectations; expansion of the company's comprehensive energy and value-added business falls short of expectations; policy side is bad for the natural gas industry