Better than expected interim result

The company reported revenue of RMB2.389 billion, which was down by 7% compared with the same period in 2014. Profit before tax increased by 14.5% yoy to RMB431 million. Net profit attributable to shareholders rose by 48% yoy to RMB276 million and EPS was RMB0.0743. The result was better than our expectations.

Retail sales of natural gas plummeted

The company's sales volume of natural gas amounted to 612 million m3, representing a decrease of 21% yoy. Of which, wholesale gas volume was up 2.9% yoy to 425 million m3 . Retail gas sales volume plunged by 53.8% yoy to 151 million m3, mainly due to the reason that production halted in H1 at most of the glass manufacturing companies in Shahe, which are the major clients of the company. Going forward, the selling price of natural gas will be under pressure. The company expects that a price cut of RMB0.5 or above will be positive to the sales volume in future.

Strong growth in the wind power business

The company's consolidated wind farms realized a power generation of 1,874 million kWh in H1, representing an increase of 32.5% yoy. The growth was mainly due to better wind resources in H1 and situation and the commencement of operation of the “three-station-four-lines” , which alleviated the stress from power constraint. The utilization hours of the wind farms of the company was 1,127 hours, representing an increase of 80 hours yoy and were higher than the average utilization hours of the nation and Hubei. The targeted annual installation capacity for the company in recent two years is 400-500MW. Currently, all projects under construction have been progressing smoothly.

Valuation

While the outlook is grim for its natural gas business, the performance of the company's wind power business is outstanding. The commencement of operation of the “three-station-four-lines” helps ease power constraint and greatly enhances the performance of its wind power generation. We expect the company's result will be further boosted by price cuts of natural gas and more wind power projects commencing operation in future. We downgrade the target price of the company to HKD2 and maintain a “BUY” rating. (Closing price as at 29 Oct 2015)

Financials

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