Investor Notes - Phillip Securities (HK) Ltd
Past Investor Notes  
Phillip Home Send to Friends Free Subscription Give Comments 中文版
20 Sep, 2023 (Wednesday)

            
CHINA RES GAS(1193)
Analysis:
On the back of its relatively large number of large-scale city gas projects, most of which are in major national strategic areas such as the Beijing-Tianjin-Hebei region, Yangtze River Delta region, Chengdu-Chongqing Two Cities Economic Zone, and Guangdong-Hong Kong-Macao Greater Bay Area, China Resources Gas (1193) will continue to have room for relatively stable development of the user market. The Group continues to focus on the development of urban natural gas users, prudently develops rural “coal-to-gas conversion” users around its projects, and optimizes the energy structure by replacing bulk coal. As of the first half of 2023, the number of registered city gas projects at the Group level reached 275, spanning across 25 provinces, including 3 direct administrative municipalities, 15 provincial capital cities, and 76 prefecture-level cities. The Group makes full use of the pipeline advantage and user resource advantage of the city gas business to develop distributed photovoltaic, distributed energy and charging business. The cumulative number of comprehensive energy projects reached 244 in the first half of 2023. The Group also actively expands the car charging market. It has established specialised car charging companies in Nanjing and Hangzhou, continued to expand its sites for bonding bus users and piloted social charging station business. In the first half of 2023, 6 charging stations were newly put into operation, resulting in a total of 177 charging stations being put into operation; the sale of electricity throughout the first half year increased by 39.8% to 150 million kWh as compared with the same period of last year. In August this year, China Resources Gas Investment, a subsidiary of the Company, entered into a strategic cooperation framework agreement and a natural gas medium to long-term sale and purchase contract with PetroChina Natural Gas Sales Company. Pursuant to the Strategic Framework Agreement, PetroChina Natural Gas Sales Company and the Group will conduct diversified cooperations focusing on the business of gas supply and extended businesses. Pursuant to the Medium to Long-Term Contract, PetroChina Natural Gas will provide medium to long-term and stable natural gas resources of approximately 40 billion cubic metres to the Group with a contract term of 10 years. On the basis of the original annual natural gas agreement, the ability to guarantee natural gas resources of the Group has been further enhanced. (I do not hold the above stock)
Strategy:
Buy-in Price: $22.50, Target Price: $25.00, Cut Loss Price: $21.50


CSSC Holdings(600150)
Analysis:
The company is a large state-owned enterprise in China mainly engaged in shipbuilding, ship repair, ship equipment, ship technology development, and the import and export of goods and technology. In the first half of 2023, the company achieved revenue of 30.526 billion yuan, a year-on-year increase of 27.5%; net profit attributable to the parent company was 553 million yuan, a year-on-year increase of 182.5%; the overall operating performance was in line with expectations. In 2023Q2, the net profit attributable to the parent company was 510 million yuan, a year-on-year increase of 254.6%. The company achieved a gross profit margin of 7.27% in 2023H1, a year-on-year decrease of 1.18pcts. The main reason is that most of the ships delivered by the company in 2023H1 were orders received from the end of 2020 to Q1 of 2021. The rapid rise of raw material steel costs in 2021H1 and low ship prices affect the company's profitability. Throughout 2023, the shipbuilding cycle will continue to rise. The driving factors for new energy-powered ship replacement are increasing. The decline in the number of active shipyards has led to a tight supply side. These reasons have maintained the upward trend of the industry's prosperity. As a leading global shipping company, the company is expected to continue to benefit.
Strategy:
Buy-in Price: RMB28.01, Target Price: RMB30.61, Cut Loss Price: RMB25.76



Binhai Investment (2886.HK) - Gas prices expect to fall in 2H, drive financial performance for the year

Binhai Investment Company Limited (Binhai) is principally engaged in the sales of piped natural gas, construction and gas pipeline installation service and gas passing through service. The natural gas business of Binhai Investment and its subsidiaries is distributed in seven provinces and two cities across the country, with a total of 40 gas project companies. At present, the largest shareholder of Binhai Investment is Tianjin TEDA Investment Holding Company, holding 40.00% of Binhai's shares, and the second largest shareholder is Sinopec Great Wall Gas Investment Company, holding 29.99% of Binhai's shares.

Suffer from rising purchase cost of natural gas in 2022, 1H margins under pressure

In FY2022, total revenue of Binhai amounted to HK$6102 million (FY2021: HK$4843 million), representing an increase of 26.0% YoY. Profit attributable to equity owners of the Company was HK$326 million (FY2021: HK$400 million), representing a decrease of 18.5% YoY. Profit attributable to equity owners of the company excluding the net foreign exchange loss recognized (FY2022: net exchange loss of HK$84 million) in profit or loss amounted to HK$410 million, representing an increase of 9% YoY. The number of regular customers from the construction and installation of gas engineering works of the company increased by 106 thousand, down by 35% YoY, and the aggregate number of customers amounted to 2299 thousand. The recorded sales volume of piped natural gas was 2.03 billion cubic metres, up by 3% YoY, among which the sales volume of pipeline gas amounted for 1.44 billion cubic metres, up by 15% YoY, and achieved 0.59 billion cubic metres of natural gas pipeline transmission for the year, down by 17% YoY. Gross profit was HK$727 million (FY2021: HK$855 million) and the gross profit margin was 11.9% (FY2021: 17.7%). The decrease in gross profit margin was mainly due to the increase in purchase cost of natural gas.

In 1HFY2023, total revenue of Binhai amounted to HK$3119 million (1HFY2021: HK$3047 million), representing an increase of 2.4% YoY. As the high price of gas supply last year was extended to the 1Q of 2023, caused the cost increased, and the real estate industry continued to operate at a low level, which affected the performance of the connection business. During the period, the gross profit fell by 11.4% YoY to HK$384 million; the gross profit margin dropped to 12.3% (1HFY2022: 14.2%). The profit attributable to owners of the company was HK$166 million during the period, representing a decrease of 35.5% YoY. Such decrease was mainly because of the decrease of gross profit and the increase of finance costs. Basic EPS were HK$12.31 cents, representing a decrease of HK$6.78 cents for the corresponding period last year.

In terms of operating segments, sales of piped natural gas amounted to HK$2790 million, representing an increase of 5%, accounting for about 89.6% of total revenue, due to the increase in natural gas sales volume and the increase in unit price of sales. During the Period, the sales volume of piped natural gas by domestic and industrial users was approximately 183 million cubic meters and 581 million cubic meters respectively, consumption of piped natural gas amounted to 6,433 x 106 and 20,408 x 106 mega-joules respectively, a slight decrease of 0.8% and an increase of 10.0% YoY. The overall pipeline gas sales volume was 764 million cubic meters, a YoY increase of about 7.2%, and has reached about 50% of the FY2023 target. In terms of gross difference, it has increased by RMB 0.03 YoY in 1HFY2023, and increased by RMB 0.05 MoM, indicating that the recovery of gross difference is optimistic.

Income from construction and gas pipeline installation service (constructs gas pipelines for its clients and connects such pipelines to the company's main gas pipeline networks. The company then charges construction and gas pipeline installation service fees from industrial and commercial customers, property developers and property management companies) amounted to approximately HK$300 million, representing a decrease of 11% YoY, accounting for about 9.6% of total revenue. During the period, the number of new customer contracts increased by exceeded 61,000, and the cumulative number of customers exceeded 2.36 million, representing a 4.5% YoY growth. As at 30 June 2023, the aggregate length of city medium-pressure gas pipeline networks was 3,825 kilometers, representing an increase of 104 kilometers, while the aggregate length of high-pressure and sub-high-pressure gas pipeline networks was 649 kilometers, representing an increase of 1 kilometer from the length of 648 kilometers as at 31 December 2022.

For the gas passing through service, the company transports gases for clients through gas pipeline networks and charges passing through fees. During the Period, the volume of gases transported by the company for its clients amounted to 313 million cubic meters and gas passing through service income amounted to HK$26 million, representing a decrease of 17%, accounting for about 0.8% of total revenue.

Gas prices continue to fall in 2H, drive financial performance for the year

In the first half of 2023, national natural gas consumption reached 194.1 billion cubic meters, representing a year-on-year increase of 5.6%. In its quarterly Natural Gas Market Report, the International Energy Agency indicated that it expects China's natural gas consumption to grow by more than 6% in 2023, providing support to the Asia region's overall natural gas consumption growth of nearly 3%. Last year, the industry was plagued by the problem of low dollar margins and the high price of gas supply was extended to the first quarter of this year. Nevertheless, Binhai managed to stabilize its dollar margins in the first half of the year through by the recovery of domestic consumption and favorable policies for the industry. The average monthly Henry Hub Natural Gas Spot Price in the US fell by 34% in the first half of 2023, while the price of natural gas in Europe fell by more than 60% this year. Looking ahead to the second half of the year, gas prices will continue to fall, and the rebound in gross profit will be supported by the increase in gas sales prices. Coupled with the resilience of the company's business income, the rebound in gross profit is expected to drive the Binhai's financial performance for the year as a whole.

Investment Thesis

Since the beginning of the year, a lot of places in China have been promoting the improvement of the upstream and downstream price linkage mechanism for natural gas. Since June, the local development and reform commissions have successively introduced policies for residents to follow the price. As of August 2023, A total of 11 subsidiaries of the company in Hebei, Shandong and Jiangsu have completed price adjustments, ranging from RMB 0.16 to RMB 0.47, with an increase ranging from 5.7% to 19.2%. It is expected to have a certain boost to further repairing the gross difference in the 2H of 2023. The improvement of the price adjustment mechanism is conducive to the recovery and stability of natural gas price differentials, and it eases the procurement pressure of city fuel enterprises. In addition, Sinopec Natural Gas has also agreed to support the Group in lowering the cost of natural gas procurement through trading and the formation of a profit model for the trading business through its superiority in upstream resources, assist the company to meet the requirements of relevant natural gas storage and peak-shaving policy requirements and the development of gas trading business, and help the company connect upstream resources and downstream markets to open up the industrial chain. In the future, there will still be room for natural gas price rationalization adjustment, and the consumption attributes of natural gas will continue to be strengthened. In terms of business expansion, the company stated that it is accelerating the development of the integrated energy business. In addition to provide comprehensive customized development and utilization solutions for new and clean energy such as photovoltaic and geothermal energy in the TEDA Science and Technology Innovation City. Binhai Investment (Tianjin) and Sinopec New Star (Tianjin) New Energy Company Limited entered into the Cooperation Framework Agreement for Integrated Energy Project to cooperate closely in the fields of energy integrated management, integrated energy development, distributed energy planning, construction, and operation; Meanwhile, the company also entered into a strategic framework agreement with Tianjin Capital Environmental Protection Group on the heating service of the energy supply project in Balitai Town, and jointly promote the comprehensive energy heating method that combines regenerative water source heat pumps and gas boilers. We expect FY2023E-FY2024E EPS to be HK$0.224 and HK$0.290 respectively, with PT of HK$2.20, implies a FY2023E P/E of 9.9x (~5-yrs historical average). Our investment rating is “Buy”.

Risk factors

1) Natural gas procurement costs rise more than expected; 2) Large fluctuations in RMB; 3) Economic recovery momentum slower than expected.

Financial

Click Here for PDF format...




Recommendation on 20-9-2023
RecommendationBuy
Price on Recommendation Date$ 1.500
Suggested purchase priceN/A
Target Price$ 2.200
Writer Info
Eric Li
(Research Analyst)
Tel: (+852 2277 6516)
Email:
erichyli@phillip.com.hk

Local Index
       Index    Change   Change%

World Index
       Index    Change   Change%
  

A-H spread
Stock Code H share
Price
A share
Price
H share
discount


Oversea Research Reports


Investment Service Centre



Enquiry : 2277 6666 OR investornotes@phillip.com.hk
If you cannot read this e-mail in the proper format, please click here to view the web version.

Information contained herein is based on sources that Phillip Securities (Hong Kong) Limited and/or its affiliates ( the “Group”) believe to be accurate. The Group does not bear responsibility for any loss occasioned by reliance placed upon the contents hereof. The Group (or its employees) may have interests in relevant investment products. For details of different products’ risks, please view the Risk Disclosures Statement on http://www.phillip.com.hk.

If you DO NOT wish to receive further marketing emails from us, please click HERE to opt-out.

版權所有, 翻印必究。

Copyright(C) 2023 Phillip Securities (HK) Ltd. All Rights Reserved.