20210827-招银国际-天伦燃气-01600.HK-Share_award_scheme_to_boost_future_growth_4页_839kb

Tian Lun Gas (1600 HK) Company Update Summary

Core Content

Tian Lun Gas (TLG) reported its first-half of 2021 (1H21) core profit at RMB449 million, a 5.9% year-over-year (YoY) increase, aligning with the expected RMB462 million. Despite the modest growth, the company's performance is seen as in line with its growth trajectory. The company's revenue rose by 20.2% YoY to RMB3.6 billion, primarily driven by piped gas sales. However, the cost of gas increased significantly, leading to a 26.5% YoY rise in COGS, which resulted in a squeeze on the gas dollar margin to RMB0.51 per cubic meter (cbm).

Main Points

• Earnings Performance:

  • Core profit for 1H21 increased by 5.9% YoY to RMB449 million.
  • Net profit for 1H21 was RMB547 million, up 37.4% YoY.
  • The company declared an interim dividend of RMB0.134 per share, reflecting a 30.2% core EPS payout ratio.

• Gas Sales and Margins:

  • Retail gas volume surged by 30.1% YoY to 742 mcbm.
  • C&I (commercial and industrial) gas sales grew by 36.1% YoY, contributing significantly to the overall volume increase.
  • The company guided down its core earnings outlook for the full year from 15% to 10–12% YoY due to conservative expectations of gas margins.

• Future Growth Outlook:

  • The company expects continued strong performance in the second half of 2021 (2H21E), with a 25% growth target for retail gas volume for the full year.
  • Management indicated that the connection pace would accelerate in 2H21E, aiming to reach the full year target of 5 million new users by year-end.
  • A new share award scheme is expected to boost future earnings growth by aligning management interests with shareholders.

• Valuation and Investment Recommendation:

  • TLG is currently trading at 6.1x FY21E and 5.9x FY22E price-to-earnings (P/E) ratios.
  • The valuation is seen as not demanding, with ample room for a re-rating.
  • The analyst maintains a BUY rating with an unchanged target price of HK$9.90, implying a potential upside of +23.75% from the current price of HK$8.00.

Key Financials

Share Performance and Market Data

• Market Cap: HK$8,029 million
• Average 3-month turnover: HK$11.00 million
• 52-week High/Low: HK$8.85 / HK$5.47
• Total Issued Shares: 1,004 million
• Shareholding Structure:
  • Tianlun Group: 46.9%
  • Free float: 28.0%

Analyst Notes

• The company is expected to maintain its growth momentum despite the sluggish 1H21 earnings.
• The share award scheme is a significant corporate action that may boost future earnings growth.
• The introduction of Zhuhai Port as a strategic investor and the share award scheme are seen as positive developments.
• The analyst is optimistic about the company's future performance and believes its valuation is attractive.

CMBIS Ratings

• BUY: Stock with potential return of over 15% over the next 12 months.
• OUTPERFORM: Industry expected to outperform the relevant broad market benchmark over the next 12 months.

Disclosures

• The report is not intended for individual investors and does not provide tailored investment advice.
• The information is based on publicly available data and is not guaranteed.
• CMBIS may have investment banking relationships with the companies mentioned in this report, which could affect the objectivity of the report.
• The report is intended for distribution to specific clients and is not to be reproduced or shared without prior consent.

Conclusion

Tian Lun Gas's 1H21 performance was in line with expectations, with strong growth in gas sales volume and a share award scheme expected to enhance future earnings growth. While the core earnings outlook was slightly adjusted due to gas margin concerns, the company remains optimistic about its growth trajectory. The valuation is considered attractive, and the analyst maintains a BUY rating with an unchanged target price of HK$9.90.