BINHAI INV (02886) achieves stable growth in mid-term performance and optimization of structure, with promising future prospects.

In the first half of 2025, BINHAI INV (02886) demonstrated significant operational resilience in the face of macroeconomic challenges. Despite a 17% year-on-year decline in revenue to HK$2.931 billion due to short-term factors, net profit attributable to equity holders increased by 3% to HK$173 million, and basic earnings per share also increased by 1% to 12.54 HK cents. This performance highlights the company's successful efforts to improve profit quality by controlling costs, repairing margins, and optimizing finances to offset revenue pressure. During the period, the average gross margin for urban gas sales increased by 0.07 RMB/cubic meter year-on-year to reach 0.50 RMB/cubic meter. This improvement was mainly due to two factors: 1. Progress in pricing mechanism: Local governments actively promoted the rationalization of residential gas prices. Pricing adjustments have been implemented in cities such as Liuyang, Changle, and Zibo, effectively resolving the issue of inverted pricing for residential gas and significantly improving gross margins. 2. Optimization of gas source structure: By diversifying gas procurement strategies (including deepening cooperation with upstream enterprises such as Sinopec), the company reduced procurement costs. In the context of oversupply in the domestic natural gas market, upstream gas prices tended to decline, further creating room for margin improvement. In the future, with the expansion of the pricing mechanism coverage area and the moderate decline in upstream gas prices, the company is expected to continue benefiting from a "double increase in volume and price," driving steady expansion of gross profit margin. Benefiting significantly from effective financial management, financing costs have greatly decreased. Through diversified financing channels and structural optimization, the company successfully reduced overall financing costs. During the period, the comprehensive financing rate dropped to 4.67%, a significant year-on-year decrease of 82 basis points. Financing costs were reduced by HK$29.14 million, directly contributing to profit growth. Additionally, subsidiary companies obtained low-interest loans from multiple banks (with rates lower than the 1-year LPR), reflecting market recognition of their financing ability and credit level. This not only reduced financial burdens but also laid a solid financial foundation for future strategic expansion (e.g., investments in comprehensive energy projects). Furthermore, BINHAI INV continues to optimize its business structure, with value-added services becoming a growth driver. Despite a short-term decline in gas sales volume due to a mild winter impacting residential gas sales (accounting for 94% of revenue), sales volume rebounded by 13% year-on-year in the second quarter, demonstrating demand resilience. Industrial user gas consumption (6.42 billion cubic meters) remains dominant, benefiting from the company's strategy of focusing on industrial customers. Value-added services (accounting for 1% of revenue) have grown steadily over four years and have become a major revenue driver, with both revenue and gross profit increasing by 7% year-on-year. Sales revenue and gross profit from the company's "Taiyue Jia" gas appliances under its own brand surged by 39% and 91% respectively, indicating increased brand premium and market recognition. Revenue growth for insurance services and non-residential maintenance reached 20% and 31% respectively, reflecting the company's successful transformation from a traditional gas supplier to a comprehensive service provider. With a high gross profit margin for value-added services, these services are expected to become an important supplement to profit growth as the business scale expands. In the macroeconomic environment shaped by central policies, the group has benefited from policy support and market opportunities. In 2025, as the final year of the "14th Five-Year Plan" and the "Seven-Year Action Plan for Oil and Gas Reserve Increase and Production Enhancement", upstream supply will continue to grow, providing a stable gas source for midstream companies. Meanwhile, domestic economic recovery is driving improvements in end-demand, maintaining the long-term growth logic of the urban gas industry. The company's strategic direction is clear, with deepened cooperation with major oil companies strengthening its gas source allocation capabilities and cost advantages. At the same time, accelerating the implementation of comprehensive energy projects (such as distributed energy and district cooling and heating), the company is transitioning into a "comprehensive energy service provider." Furthermore, expanding the boundaries of value-added services and enhancing user stickiness and single customer value. BINHAI INV has built the capacity to endure through cycles through margin repair, cost control, and business structure optimization. In the second half of the year, with the deepening of the pricing mechanism, lower gas source costs, and a rebound in demand, the company is expected to achieve double-digit growth in gas sales volume and further margin improvement to above 0.55 RMB/cubic meter. Contributions from value-added services will also continue to increase. Taking into account these factors, the mid-term performance of BINHAI INV in 2025 demonstrates its adaptability and strategic execution in the face of challenging conditions. With steady growth in net profit attributable to equity holders, margin repair, and reduced financing costs, the company's improved operational quality is confirmed. Looking ahead, the advancement of the pricing mechanism, cost dividends brought by oversupply in the industry, as well as the transformation towards value-added services and comprehensive energy, will drive the company into a new growth cycle. Investors should pay attention to the growth rate of gas sales volume in the second half of the year and the progress in margin improvement, as the company is poised to become a benchmark in the transformation of the energy structure. The short-term target price is 1.3 yuan, and the long-term target price could reach 1.5 yuan. This article is reprinted from "CICC Securities", Analyst: Zhang Zhiwei; GMTEight Editor: Xu Wenqiang.