20221102-招银国际-新奥能源-02688.HK-3Q22_operational_data_in_line__smooth_progress_towards_net-zero_target_10页_1mb

ENN Energy (2688 HK) Summary

Core Content

ENN Energy (2688 HK) announced its 3Q22 operational data, which was inline with expectations. The company's retail gas sales volume maintained low-single-digit growth, while the gas dollar margin stabilized at RMB0.53/cbm due to increased costs and reduced demand during the pandemic. The Integrated Energy (IE) business and Value-Added Services (VAS) continued to show robust growth, with the IE segment recording a 29.5% YoY increase in sales volume to 18,208mn kWh, and VAS experiencing an 8% and 34% YoY growth in low-carbon heating and household products. ENN is currently trading at 10x FY23PE, and the analysts maintain a BUY rating with a Target Price of HK$132.20, reflecting an 18.7x forward P/E, which is around +1SD of the 5-year average PE.

Main Points

• 3Q22 Operational Performance:

  • Retail gas sales volume increased by 4.4% YoY to 18.83bcm, in line with management guidance.
  • Gas dollar margin remained stable at RMB0.53/cbm.
  • IE business sales volume surged by 29.5% YoY to 18,208mn kWh, with renewable energy accounting for 21% of the total.
  • VAS sales grew by 39.2% YoY, with a penetration rate of 33% in the new customer base.

• Management Outlook:

  • Optimistic about 4Q gas sales, especially for the heating season.
  • Confident in achieving the full-year gas dollar margin target of RMB0.5/cbm.
  • Projected gas dollar margins for FY22/23/24E are estimated at RMB0.5/0.53/0.58cbm.

• ESG Development:

  • ENN has been upgraded by MSCI for four consecutive years and is now one of the highest-rated companies in the gas sector in Greater China.
  • The IE business is seen as a key driver of the company's ESG initiatives, helping clients with energy conservation and emission reduction.

• Financial Performance:

  • Revenue grew from FY20A to FY22E, with a CAGR of 10.2%.
  • Net profit increased steadily, with a CAGR of 5.6%.
  • EPS is expected to rise from RMB6.86 in FY22E to RMB7.50 in FY24E.
  • P/E ratios are projected to decrease from 11.95 in FY22E to 8.8 in FY24E.

Key Information

• Target Price: HK$132.20 (reflecting 18.7x forward P/E)
• Current Price: HK$81.85
• Market Cap: HK$9,254.0 million
• Shareholding Structure:
  • Xinneng (Hong Kong) Energy: 32.7%
  • The Capital Group: 14.0%
• Share Performance:
  • 1-month: -25.7%
  • 3-months: -39.0%
  • 6-months: -26.3%
• Valuation:
  • SOTP Valuation: HK$132.20
  • Traditional business value: RMB63.87
  • IE business value: RMB47.14
  • Total value: RMB111.02
  • Equity Value: RMB71,953 million
  • Share fair value (HK$): 72.80

Business Segments and Financial Highlights

Segment	FY22E Revenue (RMB mn)	FY23E Revenue (RMB mn)	FY24E Revenue (RMB mn)	YoY Growth (%)
Retail gas sales	113,403	120,655	131,073	8.6%
IE business	12,637	16,691	20,763	50%
VAS business	2,986	3,630	4,343	34%

Financial Metric	FY22E	FY23E	FY24E
Net Profit (RMB mn)	7,755	9,105	9,614
EPS (RMB)	7.06	7.13	7.50
P/E (x)	10.9	9.8	8.8
P/B (x)	2.2	1.9	1.7
ROE (%)	20.7	20.5	19.0

Peer Comparison

Company	Ticker	Closing Price (HK$)	Market Cap (HK$ mn)	20-22E CAGR (%)	FY0-2E P/E (x)	FY0-2E P/B (x)
ENN Energy	2688 HK	81.60	92,257.00	10.2%	11.95 / 10.90 / 9.84	2.40 / 2.08 / 1.81
Tian Lun Gas Hol	1600 HK	2.92	2,949.28	-14.6%	2.61 / 4.68 / 3.58	0.49 / 0.47 / 0.42
China Gas Holding	384 HK	7.26	39,496.84	-15.5%	3.51 / 4.76 / 4.92	0.78 / 0.60 / 0.57
China Res Gas	1193 HK	21.55	49,866.98	5.5%	7.91 / 7.78 / 7.12	1.23 / 1.11 / 1.02
Towngas Smart En	1083 HK	2.90	9,449.99	-8.2%	5.05 / 6.64 / 5.99	0.40 / 0.38 / 0.39
Kunlun Energy	135 HK	5.04	43,640.36	13.8%	8.03 / 6.53 / 6.20	0.71 / 0.67 / 0.63

Valuation Models

• DCF Valuation for IE Segment:

  • Free cash flow is projected to increase from HK$4,334 million in FY22E to HK$10,134 million in FY31E.
  • Discounted free cash flow: HK$43,839 million.
  • Terminal value: HK$104,638 million.
  • Equity Value: HK$71,953 million.
  • Share fair value (HK$): 72.80.

• SOTP Valuation:

  • Traditional business value: RMB63.87
  • IE business value: RMB47.14
  • Total value: RMB111.02
  • Target price: HK$132.20

Conclusion

ENN Energy continues to show resilience and growth in its IE and VAS segments, despite challenges in the retail gas business due to the pandemic. The company's strong ESG image and management's confidence in future performance support the BUY rating. With a target price of HK$132.20 and a forward P/E of 18.7x, the valuation reflects the company's potential for continued growth and strong performance in the energy sector.