2024-03-25 16:00Investment Rating - The report assigns a "Neutral" rating to the company with a target price of HKD 66.30, indicating a potential upside of 7.9% from the current price of HKD 61.45 [10]. Core Insights - The company's core earnings for 2023 slightly exceeded expectations, with a year-on-year decline of 4.7%, attributed mainly to profits from commodity hedging. The wholesale gas segment's gross profit fell short of expectations by approximately 25% due to lower-than-expected LNG trading profits [3][6]. - The company has increased its dividend payout ratio by 6 percentage points to 39%, despite the decline in earnings [3]. - The focus of growth is shifting towards non-LNG trading businesses, which is deemed necessary to stabilize earnings recovery. The management has separated profits from LNG trading and domestic core businesses, indicating a potential redefinition of LNG trading as a non-core business [3][6]. - Earnings composition is expected to stabilize starting in 2024, with management setting a target for retail gas segment gross profit growth of 10% [3][6]. - The report anticipates that overall core profits will decline by 9% in 2024, but growth is expected to resume in 2025 with an estimated increase of around 11% [3][6]. Financial Overview - Revenue is projected to grow from RMB 110,051 million in 2022 to RMB 139,605 million by 2026, with a compound annual growth rate (CAGR) of approximately 7.7% [2][14]. - Net profit is expected to increase from RMB 5,865 million in 2022 to RMB 8,502 million by 2026, reflecting a CAGR of about 8.5% [2][14]. - The earnings per share (EPS) is forecasted to decline from RMB 7.04 in 2022 to RMB 6.08 in 2024, before recovering to RMB 7.52 in 2026 [2][14]. - The price-to-earnings (P/E) ratio is projected to be 8.1 in 2022, increasing to 9.3 in 2024, and then decreasing to 7.6 by 2026 [2][14]. Segment Performance - The gas connection segment is expected to see a revenue decline from RMB 5,950 million in 2022 to RMB 4,480 million in 2024 [7]. - Retail gas revenue is projected to grow from RMB 60,082 million in 2022 to RMB 68,905 million by 2026, with gross profit margins expected to improve [7]. - The wholesale gas segment is anticipated to experience a significant decline in gross profit, dropping from RMB 2,736 million in 2022 to RMB 619 million in 2024 [7]. - The diversified energy and smart home segments are expected to show strong growth, with gross profit increasing by 24% and 16% respectively in 2024 [3][7].