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]

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]

Core Viewpoint - The company is expected to continue optimizing its product structure in 2024, with significant results from its new energy sector and an increase in revenue contribution from safety protection composite materials, highlighting economies of scale [1][2]. Financial Performance - In 2024, the company achieved a revenue of 1.057 billion yuan, a year-on-year increase of 14.04%, and a net profit attributable to shareholders of 217 million yuan, up 31.18% year-on-year [2][3]. - For Q1 2025, the company reported a revenue of 259 million yuan, an 18.00% increase year-on-year, while the net profit attributable to shareholders was 52 million yuan, a 22.69% increase year-on-year [2][3]. Profit Growth Drivers - The main reasons for the net profit growth in 2024 include: 1. Continuous optimization of product structure, leading to increased sales of high-value-added and innovative products, which improved overall sales prices and gross margins [3]. 2. Successful results from the new energy sector, with an increased revenue share from safety protection composite materials, showcasing economies of scale [3]. 3. High conversion rate of R&D investments, forming a diversified business matrix that enhances synergy and increases market share of core products [3]. 4. Significant cost reduction and efficiency improvement through supply chain management and lower procurement prices for key materials [3]. 5. Improved financial structure with reduced financial expenses and increased returns from cash management [3]. Product Performance - In 2024, revenue from high-temperature mica insulation materials was 727 million yuan, a year-on-year increase of 4.65%, with a gross margin of 38.17% [3]. - Revenue from new energy safety protection composite materials reached 220 million yuan, a substantial year-on-year increase of 81.41%, although the gross margin decreased to 33.38% [3]. - Revenue from fiberglass cloth was 106 million yuan, a slight year-on-year increase of 0.87%, with a gross margin of 23.43% [3].

Investment Rating - The report maintains an "Accumulate" rating for the gas industry [1] Core Views - Concerns over economic recession due to tariffs have led to a significant drop in US gas prices, while tariffs have temporarily halted the recovery of European gas prices, with domestic prices remaining stable [1][10] - The report highlights a supply-demand analysis indicating a 2.1% week-on-week increase in total gas supply in the US, while total demand increased by 7% week-on-week [15][17] - The report emphasizes the ongoing adjustments in pricing mechanisms and the gradual recovery of demand in the domestic market [50][51] Price Tracking - As of April 17, 2025, US HH gas prices decreased by 20.6%, European TTF prices increased by 6.8%, and domestic LNG prices remained stable with a week-on-week change of -0.5% [10][12] - The average total supply of natural gas in the US reached 1,124 billion cubic feet per day, with a year-on-year increase of 6.3% [15] Supply and Demand Analysis - The report notes that the US gas market is experiencing a week-on-week price drop of 20.6% due to tariff-induced inflation concerns, while total demand has increased by 7% [15][17] - In Europe, gas consumption for March 2025 was 60.5 billion cubic meters, reflecting a year-on-year increase of 1.8% [17] Pricing Progress - The report indicates that 61% of cities have implemented residential pricing adjustments, with an average increase of 0.20 yuan per cubic meter [39] - The pricing mechanism is expected to continue evolving, with potential for further adjustments in the future [39] Important Events - The report details the increase of tariffs on US LNG to 140%, noting that the impact on supply is limited due to the small proportion of US LNG in China's total imports [46] - Ongoing negotiations regarding the Russia-Ukraine conflict are highlighted as a significant factor influencing European gas supply dynamics [49] Investment Recommendations - The report recommends focusing on companies that can optimize costs and benefit from the evolving pricing mechanisms, particularly highlighting New Energy and China Gas as key players [50][51] - It suggests monitoring companies with strong long-term contracts and flexible scheduling capabilities, such as Jiufeng Energy and Xin'ao [51]

Investment Rating - The report assigns a "Buy" rating to the company, Kunlun Energy (135 HK), with a target price of HKD 9.02, indicating a potential upside of 15.1% from the current price of HKD 7.84 [1][14]. Core Insights - The company has set an ambitious retail gas growth target of 8% for 2025, supported by the addition of 8 city gas projects and an increase in commercial users [2][7]. - The financial outlook shows a slight decrease in core profit expectations for 2024, primarily due to lower-than-expected earnings from the LNG/upstream segment [7]. - The company maintains a healthy financial position with over RMB 20 billion in net cash by the end of 2024, and plans to increase the dividend payout ratio to 45% in 2025 [7][10]. Financial Overview - Revenue is projected to grow from RMB 177,354 million in 2023 to RMB 200,497 million in 2025, reflecting a compound annual growth rate (CAGR) of approximately 7.2% [3][15]. - Net profit is expected to increase from RMB 5,682 million in 2023 to RMB 6,948 million in 2025, with a corresponding EPS growth from RMB 0.71 to RMB 0.80 [3][15]. - The company’s price-to-earnings (P/E) ratio is forecasted to decrease from 10.3 in 2023 to 9.1 in 2025, indicating potential valuation upside [3][15]. Segment Performance - The natural gas sales segment is expected to generate revenue of RMB 152,090 million in 2024, with a slight decline in tax profit forecasted for this segment [9][11]. - The LNG processing and storage segment is projected to see a modest increase in revenue, while the exploration and production segment is expected to decline significantly [9][11]. - Overall, the company anticipates a tax profit growth of 16.4% in 2025, driven by improved performance in the natural gas and LNG segments [11][15]. Operational Metrics - The company’s gas sales volume is expected to rise from 30.3 billion cubic meters in 2023 to 35.5 billion cubic meters in 2025, reflecting an annual growth rate of 8.3% [10]. - The LNG plant processing volume is projected to increase from 2.83 billion cubic meters in 2023 to 3.80 billion cubic meters in 2025, with a utilization rate of 68.5% [10]. - The gross margin for gas sales is expected to stabilize at RMB 0.47 per cubic meter through 2025, despite potential discounts for commercial users [7][10].

Investment Rating - The report assigns a "Buy" rating to the company, Kunlun Energy (135 HK), with a target price of HKD 9.02, indicating a potential upside of 15.1% from the current closing price of HKD 7.84 [1][13]. Core Insights - The company aims for an aggressive retail gas growth target of 8% for 2025, supported by the addition of 8 city gas projects and an increase in commercial users [2][6]. - The financial outlook shows a slight decrease in core profit expectations for 2024, primarily due to lower-than-expected earnings from the LNG/upstream segment [6][7]. - The company maintains a healthy financial position with over RMB 20 billion in net cash by the end of 2024, and plans to increase the dividend payout ratio to 45% in 2025 [6][9]. Financial Overview - Revenue is projected to grow from RMB 177,354 million in 2023 to RMB 200,497 million in 2025, reflecting a compound annual growth rate (CAGR) of approximately 7.2% [3][14]. - Net profit is expected to increase from RMB 5,682 million in 2023 to RMB 6,948 million in 2025, with a corresponding EPS growth from RMB 0.71 to RMB 0.80 [3][14]. - The company’s P/E ratio is forecasted to decrease from 10.3 in 2023 to 9.1 in 2025, indicating potential valuation improvement [3][14]. Segment Analysis - Natural gas sales are expected to generate revenue of RMB 152,090 million in 2024, with a slight decline in profit margins due to increased competition [8][10]. - The LNG processing and storage segment is projected to see a modest increase in revenue, with processing volumes expected to rise by 7% year-on-year [6][9]. - The exploration and production segment is anticipated to face significant challenges, with a projected revenue drop of 81.2% in 2024 [8][10]. Operational Metrics - The company’s gas sales volume is expected to grow from 30.3 billion cubic meters in 2023 to 35.5 billion cubic meters in 2025, reflecting an annual growth rate of 8.3% [9][10]. - LNG terminal utilization is forecasted to remain stable at 88% in 2025, with processing capacity expected to increase [6][9]. - The gross margin for gas sales is projected to stabilize at RMB 0.47 per cubic meter through 2025, despite competitive pressures [6][9].