20230403-招银国际-天伦燃气-01600.HK-Stay_optimistic_in_2023_7页_1mb

Tian Lun Gas (1600 HK) Summary

Core Content

Tian Lun Gas (TLG) reported FY22 results that slightly missed expectations due to an economic downturn and increased gas costs. The company's revenue declined by 1.4% YoY to RMB7.54bn, with gross profit and core net profit falling by 21.7% and 35% YoY, respectively. However, there was a notable improvement in 2H22, with core net profit rising by 52% YoY compared to 1H22. The company maintains a stable dividend payout ratio of around 30%.

Main Points

Financial Performance (FY22)

• Revenue: RMB7.543bn, down 1.4% YoY
• Gross Profit: RMB1.393bn, down 21.7% YoY
• Gross Profit Margin: 18.5%, down 4.8% YoY
• Core Net Profit: RMB444.6mn, down 35% YoY
• Net Profit: RMB445mn

2023 Outlook

• Revenue Growth: Expected to increase by 12.0% YoY to RMB7.795bn
• Retail Gas Sales: Up 4.8% YoY to 1.67 bcm
• C&I Gas Sales: Expected to grow by 12.8% YoY, driven by gas demand recovery
• Dollar Margin: Projected to improve from RMB0.43/cbm in FY22 to RMB0.50/cbm in FY23
• Core Net Profit: Estimated at RMB711mn for FY23, up 57.1% YoY

Segment Analysis

• Gas Connection: Continued to slow, with revenue (excluding coal-to-gas) down 3.4% YoY to RMB838mn
• VAS (Value-Added Services): Maintained solid growth, with revenue up 24.1% YoY to RMB333mn
• New Energy Business: Developed steadily, with participation in distributed PV projects and joint ventures in Henan Province

Valuation

• Target Price (TP): Adjusted to HK$6.06, based on FY23E EPS of HK$0.71/share and 7.5x FY23E PE
• Current Price: HK$4.60, trading at 5.9x FY23E PE
• Peer Comparison: TLG's PE is lower than peers' average of 8.7x and its 3-year historical average of 7.34x, indicating an attractive valuation

Key Information

Earnings Summary

Valuation Bands

• P/E Band: Current P/E is at 5.9x, below the 3-year historical average of 7.34x
• Valuation: Considered attractive due to potential recovery in C&I gas sales and improved dollar margin

Analyst Ratings

• CMBIGM Rating: BUY
• Reason: Potential return of over 15% over the next 12 months, supported by C&I sales recovery, improved margins, and resilient VAS and new energy segments

Financial Highlights

• EPS Growth: Expected to rise from HK$0.71 in FY23 to HK$0.81 in FY24 and HK$0.94 in FY25
• P/B Ratio: Currently at 0.7x, indicating potential undervaluation
• ROE: Expected to increase from 8.3% in FY22 to 14.4% in FY25

Strategic Initiatives

• TLG upgraded its "Rural Coal-to-Gas Project" to a broader "Rural Energy Project"
• Participated in six distributed PV projects in Henan, winning four bids
• Established four joint ventures with SPIC in key cities

Investment Considerations

• Valuation: Attractive at current levels, with a target price of HK$6.06
• Growth Drivers: Expected increase in C&I gas sales, improved dollar margin, and growth in VAS and new energy
• Risk Factors: Continued slowdown in gas connection, potential challenges in achieving the dollar margin target

Summary

TLG's FY22 results were slightly below expectations due to economic conditions and higher gas costs, but there is a strong expectation of improvement in 2023. The company is anticipated to see a rebound in C&I gas sales and dollar margin, supported by gas demand recovery. While the gas connection segment continues to face challenges, the VAS and new energy segments are expected to maintain resilient growth. The current valuation is considered attractive, with a target price of HK$6.06 and a P/E ratio lower than both peers and its historical average. The BUY rating is maintained, highlighting the potential for significant returns over the next year.