HTSC·2026-03-06 02:35Investment Rating - The report maintains a "Buy" rating for the company with a target price of HKD 9.60, based on a 15x FY26 forecast PE, which is above the historical average of 10x [5][4]. Core Insights - The company is expected to benefit from a stable recovery in core business profitability and long-term growth momentum from new business initiatives, supported by strong free cash flow for stable dividends [1][4]. - The management highlighted that the impact of gas price fluctuations is manageable due to sufficient hedging and cost transmission capabilities [2]. - The implementation of the pricing mechanism is accelerating, providing a clear path for margin recovery, with an annual margin guidance of HKD 0.55 per cubic meter expected to be achieved [2]. - The company is optimizing its gas sales structure and steadily advancing its connection business, which is expected to improve the profitability structure [3]. - New business developments in integrated energy are seen as a second growth curve, with projects in biomass energy and other value-added services contributing to stable profit supplements [3]. Summary by Sections Pricing Mechanism and Cost Management - The company’s core gas supply comes from major state-owned oil companies, with a slight reliance on spot market LNG purchases, which is expected to mitigate the impact of geopolitical conflicts on gas prices [2]. - The pricing mechanism's deepening is expected to provide rigid policy support for margin stabilization, allowing the company to maintain profitability even amid upstream price fluctuations [2]. Sales Volume and Business Development - As of January 2026, retail gas sales volume showed a slight year-on-year decline, consistent with national trends, but residential gas sales are expected to grow modestly, while commercial gas demand faces short-term pressure [3]. - The connection business is progressing steadily, with the company on track to meet its annual targets [3]. New Business Initiatives - The company is actively expanding into biomass energy, with projects already launched in Anhui, supplying energy to industrial clients and supporting low-carbon production [3]. - The integrated energy business, focusing on storage, green electricity, and biomass energy, aligns with carbon reduction trends and is anticipated to become a core profit growth driver from FY26 to FY28 [3]. Financial Projections - The company’s projected net profit for FY26-28 is HKD 34.91 billion, HKD 37.36 billion, and HKD 39.49 billion, respectively, with corresponding EPS of HKD 0.64, HKD 0.69, and HKD 0.72 [4][8].