Xinjiang Xintai Natural Gas (SH:603393) Xinda Securities·2024-03-13 16:00Investment Rating - The report assigns a "Buy" rating to the company, Xinjiang Xintai Natural Gas Co., Ltd. (600886.SH) [1][2] Core Views - Xinjiang Xintai Natural Gas is a rare domestic player with rich and high-quality coalbed methane resources. The acquisition of Asia Energy has significantly enhanced the company's profitability from coalbed methane extraction, which is expected to contribute to net profit growth in 2024 [2][5] - The company has successfully completed the privatization of Asia Energy, which is anticipated to increase the contribution of coalbed methane to the company's net profit. The company is actively participating in resource auctions to further expand its upstream resource base [5][6] - The report forecasts net profits for Xinjiang Xintai Natural Gas to be CNY 1.24 billion, CNY 1.74 billion, and CNY 1.91 billion for the years 2023, 2024, and 2025, respectively, with corresponding EPS of CNY 2.92, CNY 4.12, and CNY 4.50 [2][5] Summary by Sections Company Overview - Xinjiang Xintai Natural Gas was established in March 2000 and initially focused on urban natural gas distribution in Xinjiang. The company expanded into coalbed methane extraction by acquiring a 50.5% stake in Asia Energy in August 2018, transitioning its main business from midstream urban gas to upstream coalbed methane extraction [6][17] Production and Resources - The company currently operates three coalbed methane blocks: Pan Zhuang, Ma Bi, and the newly acquired Zijin Mountain project. The Pan Zhuang block is noted as one of the best quality coalbed methane blocks in the country, with a remaining recoverable reserve of 178 million cubic meters [1][5][46] - The Ma Bi block has seen significant production growth, with a production increase of 107% year-on-year in the first nine months of 2023, reaching 3.93 billion cubic meters [11][25] Financial Performance - The company's coalbed methane extraction and sales have become its primary source of profit, with a gross profit margin of 92.2% in 2022. The report indicates a compound annual growth rate (CAGR) of 50% in gross profit from coalbed methane from 2018 to 2022 [17][6] - The report highlights that the company’s net profit for the first three quarters of 2023 was CNY 668 million, a decline of 9.05% year-on-year, primarily due to external factors affecting coalbed methane sales and pricing [17][2] Market Outlook - The report emphasizes the potential for high growth in the coalbed methane sector driven by technological advancements and favorable government policies aimed at increasing natural gas production. The company is expected to benefit from these trends, with coalbed methane production projected to maintain a growth rate of over 10% annually from 2024 to 2027 [2][31][30]