20230209-招银国际-天伦燃气-01600.HK-Rapid_recovery_in_C_l_s_gas_sales__county_new_energy_business_continues_to_heat_up_7页_975kb

Tian Lun Gas (1600 HK) Summary

Core Content and Key Highlights

Tian Lun Gas (TLG) has demonstrated a strong recovery in its Commercial and Industrial (C&I) gas sales since December 2022, attributed to the relaxation of epidemic control measures. This recovery is critical to the company's performance, as the C&I segment accounts for over 60% of its total gas sales. The company is also expanding its county new energy business, particularly in the rural rooftop photovoltaic (PV) sector, leveraging its established rural gas network and a Gas-electric Synergy Model that enables efficient resource development and flexible investment in light assets.

The company's dollar margin has improved, with 3Q22 reaching RMB0.5cbm and 2H22 returning to levels similar to previous years. TLG expects to meet its FY22 guidance of RMB0.43cbm and further improve to RMB0.48cbm in FY23. The management's continued share buyback signals confidence in the company's long-term prospects.

Main Points and Analysis

• C&I Gas Sales Recovery:

  • Rapid recovery since Dec 2022 due to relaxed epidemic controls.
  • Expected double-digit growth in 2023 as suppressed demand is anticipated to rebound.
  • Better economic conditions are expected to enhance the ability of enterprises to accept rising gas prices.

• Dollar Margin Improvement:

  • Improved to RMB0.5cbm in 3Q22, and 2H22 margin returned to previous year levels.
  • TLG believes the C&I segment will continue to drive margin improvements due to its faster response to price-cross measures compared to the residential segment.

• Rural PV Business Potential:

  • TLG has a significant rural household PV business with a strong regional advantage.
  • Estimated to have around 2mn rural gas users, translating to 200-300mm² of potential rooftop area for PV.
  • TLG targets 64,000 to 65,000 rural PV installations in 2022, with more revenue expected in 2023.
  • The PV business is projected to generate substantial gross profit and net profit over 2022-2025, with potential for long-term dividends from power stations.

• Valuation and Target Price:

  • Target price raised to HK$6.55, based on 8x 2023E EPS and rolling EPS.
  • Current valuation at around 6x 2023E PE is considered demanding compared to peers, which average around 8x PE.
  • Maintained BUY rating due to positive gas sales recovery, improved margins, value-added business, and growth potential in county energy.

Key Financials and Metrics

Earnings Summary (YE 31 Dec)

Metric	FY20A	FY21A	FY22E	FY23E	FY24E
Revenue (RMB mn)	6,440	7,650	7,709	8,495	9,364
Net Profit (RMB mn)	1,043.5	1,000.7	551.0	725.3	885.4
EPS (Reported) (RMB)	1.04	1.00	0.56	0.72	0.88
YoY Growth (%)	na	(3.9)	(44.0)	28.3	21.8
P/E (x)	5.2	4.1	7.2	5.7	4.8
P/B (x)	1.2	1.2	0.8	0.7	0.6
ROE (%)	na	20.2	10.2	12.5	13.8

Share Performance

Period	Absolute (%)	Relative (%)
1-mth	25.0	16.3
3-mth	68.4	19.2
6-mth	32.1	20.5

Valuation Adjustment

• Target Price: HK$6.55 (Previously HK$4.87)
• Share Buybacks: Continue to reflect management's confidence in the company's performance.
• Valuation Adjustment Reasoning: Adjusted rural resident users' growth to 80,000 in 2023E and 60,000 in 2024E, and lowered C&I user growth to 3,400 in 2022E due to epidemic impact.
• Net Profit Adjustment: Slightly adjusted net profit for 2022-2024E by -1%, -3%, and -5% respectively.

Peers' Comparison (2022-2024E)

Company	Closing Price (HK$)	Mkt Cap (HK$mn)	EPS 2022E	EPS 2023E	EPS 2024E	22-24E CAGR	P/E 2022E	P/E 2023E	P/E 2024E	P/B 2022E	P/B 2023E	P/B 2024E
TIAN LUN GAS HOL	1600 HK	4,909.0	0.59	0.75	0.88	22.5%	7.20	5.68	4.80	0.70	0.63	0.60
ENN ENERGY	2688 HK	115,700	6.91	7.59	8.44	10.5%	14.46	13.18	11.84	2.77	2.43	2.21
CHINA GAS HOLDIN	384 HK	12,480	1.53	1.27	1.44	-3.0%	8.18	9.86	8.69	1.04	0.99	0.93
CHINA RES GAS	1193 HK	33,900	2.74	3.03	3.39	11.1%	12.35	11.21	10.01	1.75	1.61	1.51
TOWNGAS SMART EN	1083 HK	3,880	0.43	0.45	0.53	10.8%	9.07	8.55	7.39	0.52	0.53	0.53
KUNLUN ENERGY	135 HK	6,240	0.71	0.76	0.78	4.3%	7.56	7.13	6.95	0.78	0.73	0.69
Average							9.0	8.1	7.3	0.9	0.9	0.9

Conclusion

Tian Lun Gas is expected to benefit from the recovery in C&I gas demand, improved dollar margins, and growth in its rural PV business. The company's strategic focus on the Gas-electric Synergy Model positions it well for future expansion in the county new energy sector. Despite some challenges in 2022 due to epidemic controls, the outlook for 2023 is positive, with the potential for higher revenue and profitability. The valuation is seen as demanding compared to peers, but the BUY rating is maintained due to the company's strong fundamentals and growth prospects.