ABCHINA RES GAS (01193): The profit-making ability of the gas business continues to strengthen. Investors are advised to pay attention.

Sinolink International Limited released a research report stating that CHINA RES GAS (01193) is a strong gas distributor in China. The attributable net profit for the first half of the year, excluding one-time factors, achieved rapid growth, with a growth rate better than its peers. The performance of the gas distribution business was outstanding, with the sector's performance rising over 31%. In addition to a 5.3% increase in gas sales volume, a significant increase in gross margin (+0.04 yuan/cubic meter YoY) also made a contribution. This was also attributed to a significant decrease in gas sales costs, reflecting the company's good control over gas sources. Furthermore, the company's cash flow situation is good, with a significant increase in free cash flow in the first half of the year. The company's dividend payout ratio is attractive, with a mid-term dividend of 25 Hong Kong cents per share, a significant increase compared to the previous year. Given the company's stable operations and good dividend payout ratio, investors are advised to pay attention. Event: The company achieved revenue of 52.08 billion Hong Kong dollars in the first half of 2024, an increase of 7.7% year-on-year; achieved attributable net profit of 3.46 billion Hong Kong dollars, a decrease of 2.5% year-on-year, but excluding one-time gains, achieved attributable net profit of 3.46 billion Hong Kong dollars, an increase of 21.2% year-on-year. The company achieved free cash flow of 1.9 billion Hong Kong dollars, a significant increase of 562.3% year-on-year. Sinolink International's main points are as follows: The scale of retail natural gas sales continues to expand, with a 5.3% year-on-year increase. In the first half of 2024, the company achieved a gas sales volume of 20.9 billion cubic meters, a year-on-year increase of 5.3%, with the growth in gas volume mainly driven by internal growth. Among them, the gas sales volume for residential users was 5.76 billion cubic meters, a year-on-year increase of 7%; industrial users' gas sales volume was 9.66 billion cubic meters, a year-on-year increase of 3.7%; commercial users' gas sales volume was 5.01 billion cubic meters, a year-on-year increase of 8.1%; and vehicle users' gas sales volume was 0.47 billion cubic meters, a year-on-year decrease of 8.4%. Industrial users account for the largest proportion of gas volume, accounting for approximately 46.2% of retail gas sales volume. In the first half of the year, the metal products industry and general equipment manufacturing industry saw the largest increase in gas volume, while it is expected that the ceramic glass and some non-metallic mineral products industry saw the largest decrease in gas volume due to the impact of the real estate sector. The company expects the growth in industrial gas consumption for the whole year to be consistent with the GDP growth rate, at around 5%. Gas gross margin further improved, with the gas sales sector's profit increasing significantly by 31.3%. In the first half of the year, the company's gas gross margin continued to improve, reaching 0.54 yuan per cubic meter, an increase of 0.04 yuan per cubic meter year-on-year. The gas sales business achieved a surplus profit of 4.75 billion Hong Kong dollars, a significant increase of 31.3% year-on-year. The improvement in gross margin was attributed to the decrease in gas source costs, with the company's average gas source cost in the first half of the year being 2.94 yuan per cubic meter, a decrease of 0.14 yuan per cubic meter year-on-year. Additionally, the company purchased a shipment of 63,000 tons of LNG on the spot market in the first half of the year, at a price 100-200 yuan per ton lower than the domestic market price, enriching the company's independent natural gas resource pool. Furthermore, relying on the large terminal market, the company has developed a natural gas spot trading platform and gas source network based on buyer demand, restructuring the gas source procurement business chain through digital means to enhance the company's bargaining power and overall management capacity for gas sources. As of now, more than 160 project companies and 190 suppliers have registered on the GasHewang platform, and in just over a month since its launch, the trading volume has exceeded 45 million cubic meters, with a trading amount of 150 million yuan. The comprehensive services and comprehensive energy businesses continue to maintain rapid growth. In the first half of the year, the company's comprehensive service revenue was 1.77 billion Hong Kong dollars, an increase of 20% year-on-year; departmental profits were 760 million Hong Kong dollars, an increase of 22.1% year-on-year. The market share of kitchen appliances heating has increased from 8.7% to 9.0%, the market share of insurance agency has increased from 25.6% to 25.8%, and the average income per household in the housing business has increased from 54.2 yuan to 55.1 yuan. The company's comprehensive energy business achieved revenue of 830 million Hong Kong dollars, an increase of 38% year-on-year, with a gross profit of 160 million Hong Kong dollars, an increase of 84.3% year-on-year. In the future, the company will continue to focus on the dual comprehensive business and maintain high-speed growth. The connecting business is still affected by the real estate sector. In the first half of the year, the company added 1.031 million new residential connecting users, a year-on-year decrease of 23.1%. The company's connecting business is still affected by the real estate sector, and it is expected to face some challenges in achieving the target of 3 million households for the full year. Mid-term dividend significantly increased, continuing to reward shareholders. The company declared a mid-term dividend of 25 Hong Kong cents per share in 2024, an increase of 66.7% year-on-year. The company's dividend payout ratio was 50.3% last year, which has been steadily increasing. It is expected that there is still room for further increase in the dividend payout ratio for the full year this year. Risk warning: Lower-than-expected gas demand; lower-than-expected gross margin; lower-than-expected completion of connecting projects; lower-than-expected LNG processing volume.