Group 1 - The Asia Value & Moat Stocks research service targets value investors looking for Asia-listed stocks with significant discrepancies between price and intrinsic value, focusing on deep value balance sheet bargains and wide moat stocks [1] - The service emphasizes investment opportunities in the Hong Kong market, providing watch lists and monthly updates for investors [1] - The Value Pendulum specializes in the Asian equity market, with over a decade of experience on both buy and sell sides, indicating a strong expertise in the region [2] Group 2 - The analyst has a beneficial long position in KUNLUN ENERGY (0135.HK), suggesting a personal investment interest in this stock [2] - The article expresses the author's own opinions and does not involve compensation from any company mentioned, indicating an independent analysis [2]

Core Viewpoint - The four major urban gas companies in China have released their 2024 ESG reports, highlighting their greenhouse gas emissions and sustainability efforts, with a notable decrease in emissions across the board [1][3]. Emission Data Summary - Kunlun Energy has the highest total greenhouse gas emissions at 1.594 million tons of CO2 equivalent, a year-on-year decrease of 1.5%, with scope 1 emissions at 490,000 tons and scope 2 emissions at 1.104 million tons [3]. - New Hope Energy reported total emissions of 205,000 tons of CO2 equivalent, down 12.4% year-on-year, with scope 1 at 101,000 tons and scope 2 at 104,000 tons [3]. - China Resources Gas emitted 129,000 tons of CO2 equivalent, a decrease of 10.8% year-on-year, with scope 1 at 39,000 tons and scope 2 at 90,000 tons [3]. - Honghua Smart Energy had the lowest emissions at 77,000 tons of CO2 equivalent, with the largest reduction of 26% year-on-year, scope 1 at 48,000 tons and scope 2 at 29,000 tons [3]. Scope 3 Emissions - Kunlun Energy's scope 3 emissions exceeded 100 million tons, reaching 142 million tons of CO2 equivalent, with the highest contributions from "use of sold products" and "purchased goods and services" [7]. - New Hope Energy's scope 3 emissions were 60.2 million tons, primarily from the "use of sold products" category [8]. - Honghua Smart Energy reported scope 3 emissions of 11.7 million tons, with the majority from "use of sold products" [8]. Hazardous Waste and Environmental Investment - Honghua Smart Energy reported the highest hazardous waste at 25 tons, followed by New Hope Energy at 22.68 tons and China Resources Gas at 9.24 tons [11]. - Kunlun Energy disclosed hazardous solid waste of 756 tons and methane emissions of 6,863 tons, down 4% year-on-year [13]. Sustainability Initiatives - Urban gas companies are actively pursuing new growth avenues to align with carbon neutrality goals, focusing on "urban gas + new energy" strategies [14]. - Honghua Smart Energy has implemented 128 zero-carbon smart parks and has a total installed photovoltaic capacity of 2.3 GW [14]. - China Resources Gas is focusing on distributed photovoltaic energy, with a total signed installed capacity of 4 GW and operational capacity of 3.1 GW [14]. - Kunlun Energy is expanding its renewable energy projects, including distributed photovoltaic and wind energy [14][15]. - New Hope Energy aims to increase the share of renewable energy to 36% by 2030, with a current share of 23.5% [15][16].

Group 1 - The Hong Kong stock market saw a strong performance in the oil sector, with notable gains in several companies [1] - Yanchang Petroleum International (00346.HK) experienced a significant increase of 20.59% [1] - Other companies in the sector also reported gains, including Kunlun Energy (00135.HK) up by 2.78%, China National Offshore Oil Corporation (00833.HK) up by 2.18%, and CNOOC Services (02883.HK) up by 2.08% [1]

Investment Rating - The report assigns an "Overweight" rating to Kunlun Energy (00135) [1] Core Views - Morgan Stanley slightly lowered the target price for Kunlun Energy by 2.2%, from HKD 9.1 to HKD 8.9 [1] - The update includes a new model incorporating 2024 performance and introduces forecasts for 2027 [1] - The earnings forecast for the company has been reduced to reflect a more conservative outlook on overall industry growth and a decrease in natural gas sales volume growth [1] - Given the increasing concerns about the macro environment, the market is expected to place more emphasis on the stock's defensive characteristics, leading to a slight premium in valuation [1]

Investment Rating - The report maintains an "Overweight" rating for the gas industry [1] Core Viewpoints - Weak demand has led to a decline in domestic gas prices, while storage levels are pushing down European gas prices [1][5] - The report highlights the ongoing adjustments in pricing mechanisms and the gradual recovery of demand, with a focus on cost optimization for gas companies [5][48] Price Tracking - As of May 30, 2025, the weekly price changes for various gas markets are as follows: US HH +0.6%, European TTF -7%, East Asia JKM -2.6%, China LNG ex-factory -1.1%, and China LNG CIF -4.2% [10][11] - Domestic gas prices have slightly decreased by 1.1% due to slow demand recovery and the upcoming Dragon Boat Festival [24] Supply and Demand Analysis - In the US, total gas supply increased by 0.6% week-on-week to 1,125 billion cubic feet per day, while total demand decreased by 0.8% to 973 billion cubic feet per day [15] - European gas consumption for January-February 2025 was 1,155 billion cubic meters, up 11% year-on-year, but supply decreased by 10.8% week-on-week [16] Pricing Progress - Nationwide, 63% of cities have implemented residential pricing adjustments, with an average increase of 0.21 yuan per cubic meter [34] - The report indicates that there is still a 10% room for price gap recovery in city gas companies [34] Important Events - The US LNG import tariff has been reduced from 140% to 25%, enhancing the economic viability of US gas imports [41][43] - The European Commission has voted to introduce more flexible natural gas storage filling targets to avoid supply shortages [46][47] Investment Recommendations - The report suggests focusing on companies that can optimize costs and benefit from the ongoing pricing adjustments, recommending companies like Xinao Energy and China Gas [48] - It also highlights the importance of companies with quality long-term contracts and flexible scheduling capabilities, such as Jiufeng Energy and Xinao [48]

Core Viewpoint - The consensus among industry leaders is to enhance upstream and downstream resource integration, strengthen customer service and comprehensive energy service capabilities, and utilize new AI technologies to improve operational efficiency [1][8]. Industry Challenges - The urban gas industry is undergoing deep adjustments due to changes in business models, increased safety costs, and complex international situations, which pose new challenges for company development [1][4]. - The industry has transitioned from a decade of rapid growth to a more saturated market, with major players and numerous small companies creating a fragmented landscape [4]. - The operating environment for urban gas companies is becoming less optimistic due to intensified safety regulations, rising costs, and international market fluctuations caused by geopolitical events like the Russia-Ukraine conflict [4][5]. Financial Performance - Urban gas companies have seen a decline in net profits, shifting from double-digit growth to single-digit or even negative figures, largely due to reduced margins in gas connection services [5]. - The engineering installation business has also been negatively impacted by the ongoing downturn in the real estate market, leading to significant revenue and margin declines [5]. Pricing and Market Dynamics - The pricing structure in the urban gas sector is characterized by a mismatch between upstream pricing controlled by major oil companies and government-regulated downstream sales prices, which limits flexibility [5][6]. - Companies are experiencing pressure from gas price inversions, particularly in regions like Wuhan, where selling gas incurs losses [5]. Infrastructure and Investment - Companies are investing heavily in upgrading aging pipeline networks, with Shanghai Gas completing 770 kilometers of pipeline renovations and planning to invest around 10 billion yuan for an additional 900 kilometers [6][8]. - The strategic focus includes enhancing local high-pressure gas networks and improving interconnectivity with other regions to ensure stable gas supply [8]. Customer Service and Technological Integration - Companies are recognizing the need to diversify energy services to meet the evolving demands of industrial clients, who now require various forms of energy beyond just gas [9]. - The adoption of AI and digital technologies is seen as crucial for reducing operational costs and improving service efficiency, with initiatives like the installation of smart gas meters being implemented [9].

Summary of Kunlun Energy Conference Call Company Overview - **Kunlun Energy** is a natural gas terminal company controlled by China National Petroleum Corporation (CNPC), benefiting from stable low-cost gas supply and growing domestic natural gas demand [2][3][23]. Key Financial Metrics - **Revenue Growth**: Expected revenue for 2024 is 187 billion yuan, a 5.5% increase year-on-year, with an average annual growth rate of 17.3% from 2014 to 2024 [2][8][26]. - **Profitability**: - EBITDA for 2024 is projected at 12.5 billion yuan, a 1.6% decrease year-on-year. - Net profit attributable to shareholders is expected to be 6 billion yuan, a 4.9% increase year-on-year [2][8][26]. - **Cash Flow**: Operating cash flow for 2024 is projected at 12.6 billion yuan, with free cash flow at 7 billion yuan [9][27]. Business Segments - **Natural Gas Sales**: This is the main business segment, with average revenue growth of 13.7% and pre-tax profit growth of 15.7% from 2016 to 2024 [10][30]. - **LNG Business**: - Expected to contribute 3.577 billion yuan in pre-tax profit for 2024, with a profit margin of 75% [4][35]. - Total processing volume for 2024 is projected at 15.94 billion cubic meters, with a compound growth rate of 87.6% [4][35]. Market Position and Strategy - **Geographical Focus**: Kunlun Energy has a strong presence in the western regions of China, with 28% of its city gas projects located there, aligning with the industrial shift towards the west [12][31]. - **Industrial User Growth**: The number of industrial users has grown at an average rate of 22.54% from 2018 to 2024, benefiting from the relocation of industries to the western regions [12][32]. Competitive Advantages - **Cost Control**: The company benefits from low gas procurement costs due to its relationship with CNPC, maintaining costs below industry peers [14][33]. - **LNG Supply Stability**: The LNG business is supported by stable overseas supply from CNPC, allowing for high operational efficiency [35]. Future Outlook - **Demand Growth**: The International Energy Agency (IEA) predicts a 6.8% growth in China's natural gas demand by 2025, making it one of the fastest-growing markets globally [4][19][36]. - **Profit Forecast**: Expected net profits for 2025, 2026, and 2027 are projected at 6.6 billion, 7.1 billion, and 7.6 billion yuan, respectively [4][22][38]. Dividend Policy - The company has announced a three-year dividend distribution plan, aiming to increase the payout ratio to 45% by 2025, with a current dividend of 0.3158 yuan per share [9][29]. Conclusion - Kunlun Energy is positioned for growth with a strong market presence, stable cash flows, and a focus on expanding its LNG and natural gas sales. The company is expected to benefit from favorable market conditions and strategic advantages in procurement and regional focus [2][4][22][38].

Investment Rating - The report assigns an "Accumulate" rating to the company, Kunlun Energy (0135.HK) [6]. Core Views - Kunlun Energy, as a subsidiary of China National Petroleum Corporation, is positioned to benefit from the high-quality development of its natural gas terminal business, with a projected net profit of 6 billion yuan in 2024, representing a year-on-year growth of 4.9% [1][4]. - The company aims to increase its dividend payout ratio to 45% by 2024, reflecting a commitment to returning value to shareholders [1][46]. - The natural gas sales business is expected to maintain strong growth, with a compound annual growth rate (CAGR) of 13.7% in revenue from 2016 to 2024, supported by a stable supply of high-quality gas from its parent company [2][53]. Summary by Sections 1. Company Overview - Kunlun Energy is the largest natural gas terminal utilization enterprise in China, focusing on natural gas sales and comprehensive utilization, with operations covering 28 provinces and municipalities by the end of 2024 [17][26]. - The company achieved a natural gas sales volume of 54.2 billion cubic meters in 2024, marking a year-on-year increase of 9.9% [17][26]. 2. Business Development - The natural gas sales business is expanding, with a significant focus on industrial gas sales, which is projected to grow at a CAGR of 24.35% from 2018 to 2024 [2][58]. - The company has established two LNG receiving stations with a total unloading capacity of 13 million tons per year, contributing a pre-tax profit of 3.577 billion yuan in 2024, with a profit margin of 75% [3][72]. 3. Financial Projections and Valuation - The company forecasts net profits of 6.649 billion yuan, 7.124 billion yuan, and 7.598 billion yuan for 2025, 2026, and 2027, respectively, with corresponding earnings per share (EPS) of 0.77 yuan, 0.82 yuan, and 0.88 yuan [4][5]. - The report highlights a stable financial structure with a projected revenue of 187.046 billion yuan in 2024, reflecting a growth rate of 5.46% [5][28]. 4. Market Position and Competitive Advantage - Kunlun Energy benefits from a strong resource supply from its parent company, which allows it to maintain a competitive edge in purchasing costs compared to other gas companies [2][64]. - The company is gradually transitioning from upstream oil exploration to focus on natural gas terminal utilization, reducing its cyclical exposure [3][89].

Investment Rating - The report maintains a positive outlook on the power and natural gas sectors, indicating a favorable investment environment for renewable energy and gas companies [2][10]. Core Insights - The Shandong provincial government has introduced its first local guidelines for the marketization of renewable energy pricing, which is expected to stabilize returns for existing projects and provide a model for other provinces [5][7]. - Global natural gas prices have seen a slight rebound due to tightening supply and increased demand for LNG exports, with specific price movements noted in various regions [10][19]. - The report highlights the potential for LNG import prices to decrease further in the second half of 2025, benefiting downstream gas companies [11][29]. Summary by Sections 1. Power Sector: Shandong's New Energy Market Guidelines - Shandong's new energy pricing reform outlines that existing projects will participate in market pricing at a rate of 0.3949 yuan per kWh, aligning with the provincial coal benchmark price [5][6]. - The guidelines emphasize strong connectivity with existing policies, ensuring stability for existing projects while introducing competitive elements for new projects [6][7]. - The implementation of these guidelines is expected to serve as a model for other provinces, enhancing the operational efficiency and market strategies of renewable energy companies [7][8]. 2. Natural Gas: Global Demand and Price Rebound - As of May 9, 2025, the Henry Hub spot price in the U.S. was $3.22/mmBtu, reflecting a weekly increase of 3.84%, while European prices also saw a rise due to supply constraints and seasonal demand [10][19]. - The report notes that the overall LNG import cost in China has remained below 4000 yuan per ton, with a significant decrease of 18.4% from the year's peak [11][29]. - The anticipated decline in international oil prices is expected to further lower LNG import prices in China, benefiting city gas companies [11][29]. 3. Weekly Market Review - The public utilities, environmental protection, power equipment, and gas sectors outperformed the Shanghai and Shenzhen 300 index during the review period [35]. 4. Company and Industry Dynamics - Recent developments include the issuance of competitive configuration announcements for renewable energy projects in various provinces, indicating ongoing investment and growth in the sector [44][46]. - The report also highlights significant corporate announcements, including financing and profit distribution plans from key players in the energy sector, reflecting a proactive approach to capital management and shareholder returns [48][49].

Financial Performance - Revenue for the year ended December 31, 2024, reached RMB 187,046 million, an increase of 5.8% compared to RMB 177,354 million in 2023[24] - Profit attributable to shareholders for the year was RMB 5,960 million, up from RMB 5,682 million in 2023, reflecting a growth of 4.9%[24] - Core profit before income tax expense was RMB 13,259 million, compared to RMB 13,101 million in 2023, indicating a year-on-year increase of 1.2%[24] - EBITDA for the year was RMB 17,640 million, slightly down from RMB 17,675 million in 2023[24] - The company reported a profit before income tax expense of RMB 12,635 million, a marginal increase from RMB 12,593 million in the previous year[24] - Net profit margin for 2024 is 5.08%, a decrease of 0.14% from 2023[28] - Return on total assets (ROA) improved to 6.63% in 2024, up from 6.55% in 2023[28] - Earnings per share (Basic) increased to 68.83 RMB cents in 2024, compared to 65.62 RMB cents in 2023[28] - Other net gains for the year were approximately RMB 1,520 million, up from RMB 903 million in 2023, primarily due to integration of gas stations and reduced exchange losses[98] Sales and Operations - Total natural gas sales volume was 54,170 million cubic meters, contributing to revenue of RMB 152,090 million from the natural gas sales business[6] - The company added 849,900 new users, bringing the cumulative total to 16,453,800 users across the country[6] - Sales volume of city gas reached 421 million cubic meters in 2024, an increase of 8.8% from 387 million cubic meters in 2023[33] - Total sales volume of natural gas reached 542 million cubic meters in 2024, a 9.9% increase from 493 million cubic meters in 2023[33] - The total number of city gas users exceeded 16.45 million, with retail volume increasing by 8.1% year-on-year and sales totaling 54.17 billion cubic meters[55] - Retail gas volumes in the northwestern and southwestern regions increased by 12% and 19.2%, respectively[59] - The total refueling volume for LNG ship refueling-at-sea business was 110,000 tonnes for the year, representing a year-on-year increase of 470%[59] Assets and Liabilities - Non-current assets totaled RMB 86,153 million, while current assets were RMB 57,237 million as of December 31, 2024[24] - The company’s net assets increased to RMB 88,835 million, up from RMB 85,783 million in 2023[24] - Total assets as of December 31, 2024, were approximately RMB 143,390 million, a decrease of RMB 129 million or 0.1% from RMB 143,519 million as of December 31, 2023[115] - The Group had total borrowings of RMB 23,462 million as of December 31, 2024, with significant repayments due within one year increasing to RMB 9,133 million from RMB 5,464 million last year[123] Cost Management - Average finance cost decreased to 2.90% in 2024 from 3.33% in 2023, reflecting improved financing conditions[28] - Employee compensation costs for the year were approximately RMB 5,830 million, a decrease of 2.4% from RMB 5,970 million last year, with employee compensation accounting for 3.12% of operating revenue[102] - Depreciation, depletion, and amortization for the year were approximately RMB 5,160 million, representing an increase of 3.4% compared to RMB 4,992 million last year[103] - Other selling, general, and administrative expenses for the year were approximately RMB 3,491 million, a decrease of 4.5% from RMB 3,656 million last year, due to strict cost control measures[104] - Interest expenses for the year were approximately RMB 803 million, representing a decrease of 16.4% compared to RMB 960 million last year, attributed to a reduction in average financing costs to 2.9% from 3.3%[111] Strategic Initiatives - In 2025, the company aims to enhance marketing strategies and focus on green and low-carbon development to seize opportunities presented by the central government[76] - The company plans to increase the proportion of retail gas volume to 73% or above and aims to put 10 new projects into production[81] - The company will accelerate the transformation of the "Natural Gas+" intelligent integrated energy service model, focusing on low-carbon and zero-carbon initiatives[82] - The company aims to achieve a target of over 15% for low-carbon and zero-carbon stations in its operations[84] - The company continues to focus on five major strategies: innovation, green, market, capital, and low cost, to enhance operational efficiency and market competitiveness[86] Governance and Management - The Company has complied with all code provisions in Part 2 of the Corporate Governance Code during the year, except for the absence of certain independent non-executive directors at meetings[159] - The Board is collectively responsible for promoting the success of the Company by directing and supervising its affairs[165] - The day-to-day management and operation of the Company are delegated to the Chief Executive Officer and senior management, with periodic reviews of delegated functions[168] - The Company has established clear directions regarding the powers of management and the circumstances under which management must report back to the Board[174] - The Board has a necessary balance of skills and experience appropriate to the business requirements, ensuring effective independent judgment[176] Workforce and Diversity - The Group employed 24,809 employees globally as of December 31, 2024, a decrease from 27,138 employees in the previous year[132] - As of December 31, 2024, the total number of employees was 24,809, with male employees constituting 68.3% and female employees 31.7%[198] - The Board consists of six male Directors and one female Director, indicating a gender diversity ratio of approximately 14.3% female representation[189] - The Company has adopted a Board Diversity Policy to ensure a balanced representation of skills, experience, and gender among Board members[190] - The Company maintains a commitment to gender diversity in its workforce, opposing any form of discrimination[200]