Zhi Tong Cai Jing·2025-12-01 05:57Core Viewpoint - Huayuan Securities initiates coverage on Xin'ao Energy (02688) with a "Buy" rating, highlighting the company's privatization efforts to achieve synergies with its parent company Xin'ao Holdings, alongside stable natural gas operations and growth potential in its diversified energy and smart home businesses [1] Group 1: Privatization and Corporate Structure - Xin'ao Energy, established in 1993, is a national city gas company under Xin'ao Group, with its controlling shareholder being Xineng (Hong Kong), a wholly-owned subsidiary of Xin'ao Holdings [1] - Xin'ao Holdings currently holds 34.28% of Xin'ao Energy and plans to privatize the company, which will subsequently delist and become a wholly-owned subsidiary of Xin'ao Holdings [1] - The proposed privatization plan offers shareholders 2.9427 shares of Xin'ao Holdings' H-shares (valued at HKD 18.86 per share) and HKD 24.50 in cash, totaling HKD 80, representing a 12.8% upside from the closing price on November 28 [1] Group 2: Natural Gas Retail Performance - As of H1 2025, Xin'ao Energy operates 263 city gas projects nationwide, with the top five provinces being Hebei, Guangdong, Anhui, Jiangsu, and Shandong [2] - Retail gas volume reached 26.2 billion cubic meters in 2024, a year-on-year increase of 4.2%, while Q1-Q3 2025 recorded 19.19 billion cubic meters, up 2.0%, surpassing the national gas consumption growth rate [2] - The company has improved its gross margin to RMB 0.54 per cubic meter in 2024, an increase of RMB 0.04 year-on-year, benefiting from a decline in international gas prices [2] Group 3: Gas Connection Business Trends - The number of new residential gas connections has decreased from 2.622 million in 2021 to 1.617 million in 2024 due to adjustments in the real estate sector [3] - The profit contribution from the gas connection business has declined, with its share falling to 14.14% in 2024 and further to 12.70% in H1 2025, although the impact is considered manageable compared to industry peers [3] Group 4: Growth in Diversified Energy and Smart Home Businesses - Xin'ao Energy is expanding its diversified energy business, with a total installed capacity of 6.9 GW and 1.6 GW under construction as of September 2025 [4] - The smart home business is growing rapidly, with a compound annual growth rate (CAGR) of 22.7% in gross profit from 2020 to 2024, indicating potential for continued performance enhancement [4]