Haitong Int'l released a research report stating that it maintains a "outperform" rating on China Res Gas (01193), based on the company's performance, adjusting the company's main revenue for FY24-26 to be 1,026.5/1,083.6/1,143.9 billion Hong Kong dollars, corresponding to a net income of 5.43/5.7/5.98 billion Hong Kong dollars, with a target price raised to 37.9 Hong Kong dollars. Looking ahead to 2024, the bank believes that the macro and industry environment still poses challenges to future profitability, but the company's overall operation is relatively stable.

Haitong International's main viewpoints are as follows:

Benefiting from the steady growth of retail gas sales volume and docking business, the company's first-half revenue and gross profit margin have been further improved.

The company achieved revenue of 52.08 billion Hong Kong dollars in 2024H1, a year-on-year increase of 7.7%; operating profit of 5.56 billion Hong Kong dollars, a year-on-year increase of 18.3%; pre-tax profit of 5.7 billion Hong Kong dollars, a year-on-year increase of 2.3%; a net profit attributable to the mother of 3.46 billion yuan, a year-on-year decrease of 2.5%; in terms of specific profit margins, the company's gross margin/operating profit margin/net profit margin is 18.6%/10.7%/6.6%, respectively, with a year-on-year change of +0.3pct/+1.0pct/-0.7pct. The company plans to distribute a mid-term dividend of 25 Hong Kong cents per share, a year-on-year increase of 66.7%.

Residential and commercial users are driving the growth of the company's retail gas sales volume.

In the first half of the year, the company's total retail gas volume was 20.9 billion cubic meters, a year-on-year increase of 5.3%, with residential/industrial/commercial/automotive user gas sales volumes increasing by +7.0%/3.7%/8.1%/-8.4% year-on-year, respectively. The year-on-year growth of gas sales volume for industrial and commercial users helps optimize the company's gas sales margin, with the gross margin per unit optimized to 0.54 yuan/cubic meter in the first half of the year, a year-on-year increase of 0.04 yuan/cubic meter. However, influenced by industry and environmental factors, the addition of residential users decreased by 23.1% year-on-year to 1.031 million households, with new building users accounting for 85.5%, and the total number of users increased by 5.3% year-on-year to 58.836 million households. The large user base not only brings new growth to the docking business but also generates synergies for the company's comprehensive energy business.

The revenue and profitability of the comprehensive energy business have been overall enhanced.

This growth is attributed to the company's continuous expansion in businesses such as kitchen appliance heating, insurance agency, and secure living products. By providing a diversified range of comprehensive service product combinations, the company meets the diverse needs of users, enhances user stickiness, and also brings new sources of revenue to the company. In addition, the company's investment in smart management and services, such as the promotion of the gas housekeeper service model, further enhances customer service experience and strengthens the company's market competitiveness.

In addition, it demonstrates the company's strategic layout and development potential in the new energy field. The company has deployed a total of 263 super liquid-cooled ultra-fast charging stations and promoted integrated applications of light storage and charging, with 9,386 buses connected. In the first half of the year, the sales volume reached 0.18 billion kilowatt-hours, a 20% year-on-year increase. These measures not only respond to the country's promotion policies for new energy vehicles and clean energy, but also give the company a first-mover advantage in energy transformation. The company is actively exploring in areas such as distributed photovoltaics, distributed energy, and transport charging, expecting to bring new growth points to the company.

Risks: macroeconomic policy risks; volatility in natural gas prices; risks of lower-than-expected end demand.