The continuous optimization of the business structure highlights operational resilience, and the undervalued TIAN LUN GAS (01600) demonstrates its investment value.

In the first half of 2026, reforms in the city gas industry accelerated comprehensively. Policies related to safety regulation, price control, and compliant operations were densely implemented, driving the industry into a new phase of standardization and high-quality development. As the transformation gradually enters a "deep water zone," the underlying logic of the industry is rapidly shifting from "scale-driven" to "quality-driven." The challenge now facing small and medium-sized city gas companies is to reverse their trajectory from "quantitative expansion" to "qualitative breakthroughs" amid "changing speeds" in industry growth. On August 28, TIAN LUN GAS released its interim financial report for 2026. As a significant player in the domestic gas industry, this report provides an insightful case study on the aforementioned issues. The report shows that during the reporting period, TIAN LUN GAS generated revenue of 4.331 billion yuan, a year-on-year increase of 2.1%, with adjusted core profits at 97 million yuan. The steady growth in revenue not only reflects the robustness of TIAN LUN GASs business fundamentals but also highlights its operational resilience exhibited in its strategic upgrade from a city gas supplier to a comprehensive energy service provider. Business structure optimization demonstrates resilience, with double-digit growth in gross margins on the second growth curve. From an industrial perspective, the comprehensive acceleration of the sectors transformation in the first half of 2026 represents merely one facet of the gas industry's regulatory landscape; the structural pressures on costs and demand are much more challenging. On the cost side, due to international turmoil, fluctuations in global gas prices have driven up procurement costs. Residential gas prices are constrained by livelihood regulations, while industrial and commercial gas prices face dual pressures from market competition, leading to significant delays in cost transmission to end-users and narrower purchase-sale price margins. On the demand side, there is a structural contraction underway. In the first half of 2026, the nationwide apparent consumption of natural gas reached 206.85 billion cubic meters, a year-on-year decrease of 2.4%. While demand has turned negative compared to the previous year, this is just the surface; the deeper challenge is the systemic shift of the growth engine. The "increase in gasification rates" and "new connections," which have driven madcap growth for the industry over the past two decades, have simultaneously stalled. Furthermore, there is a weakness in the growth of industrial and commercial gas consumption, while the transportation and distributed energy sectors face a continuous amplification of the substitution effects from new energy sources. The industry is gradually shifting into a "stock game," meaning city gas companies must change their growth paradigm from "extensive expansion" to "intensive exploration," seeking new value anchors through meticulous operations and comprehensive services in the stock market. Amid multiple challenges from accelerated industry transformation and structural pressure on costs and demand, TIAN LUN GAS focused on ensuring public gas supply as its foundation, continuously consolidating its competitive advantage in the core natural gas business while actively cultivating comprehensive service businesses that are highly synergistic with the gas industry to deeply explore the value of existing resources. In sales gas operations, TIAN LUN GAS consistently optimized gas sources, maintaining a dual approach of diversifying source procurement, empowering through science and technology, and ensuring coordinated facilities, thereby solidifying its gas supply capability. As of June 30, 2026, TIAN LUN GAS had accumulated a pipeline length of 9,763 kilometers for medium and high-pressure gas. On this basis, TIAN LUN GAS actively promoted price guidance work, enhancing gas supply and energy services for industrial and commercial users, stabilizing core customer demand and digging deeper into stock market potential; it also accurately assessed market and user needs, vigorously developing energy trading business. With multiple measures in place, the total sales volume of gas in the reporting period increased by 6.1% to 1.346 billion cubic meters, significantly outperforming the industry growth rate (with nationwide apparent consumption down by 2.4% year-on-year). Driven by the increase in sales volume, TIAN LUN GASs gas sales revenue rose by 8.0% to 3.93 billion yuan in the reporting period. Among them, retail business benefitted from a year-on-year growth of 2.6% and 3.0% in gas sales volume to residential and industrial users, respectively, leading to a 1.5% increase in retail sales volume to 893 million cubic meters, with retail business revenue rising by 1.9% to 2.612 billion yuan, keeping the main business foundation robust. The wholesale business, relying on the expansion of energy trading, saw gas sales volume grow by 16.7% to 453 million cubic meters, which drove wholesale business revenue up by 22.3% to 1.318 billion yuan. The high elastic growth of the wholesale segment is a key support for TIAN LUN GASs overall sales gas volume outpacing the industry. While the gas sales business develops steadily, TIAN LUN GAS utilizes its substantial existing user base to extend its comprehensive service chain through regular household safety inspections and personalized modifications to gas pipelines, continually enhancing service variety. During the reporting period, comprehensive service revenue grew by 1.8% to 235 million yuan, with gross profit of 125 million yuan, a year-on-year increase of 9.9%the gross margin growth significantly outpacing revenue growth, reflecting an increasing share of high-value-added formats such as personalized kitchen renovations, which is becoming a core driver of profitability in comprehensive services. Notably, in TIAN LUN GAS's interim results, the company's business structure has achieved continuous optimization. The proportion of gas sales business in total revenue rose to 90.68%, further highlighting its core main business. At the same time, comprehensive services have emerged as TIAN LUN GASs second growth curve, accounting for 5.43% of total revenue; while the traditional engineering installation and service business has been actively reduced, its contribution to the companys total revenue has now dropped to about 2.75% during the reporting period, making its marginal impact increasingly negligible. It is evident that the core gas sales business and the second growth curve in comprehensive services have become the main conduits for TIAN LUN GASs high-quality transformation. From "stability" to "increase," three key logical supports may lead to profit recovery. If TIAN LUN GAS's performance in the first half of 2026 is primarily characterized by "stability," maintaining the scale and structure of the companys business, then entering the second half, the company is expected to transition from "stability" to "growth," with the recovery in profit quality potentially driving substantial recovery in profitability. The logic behind profit recovery is first reflected in the restoration of gross margins, which is the most certain aspect and the most direct source of profit elasticity. Given TIAN LUN GAS's advantage in industrial and commercial sectors, it will be a key support for the restoration of gross margins. TIAN LUN GASs city gas and commercial projects primarily located in inland provinces such as Henan, Jilin, Yunnan, Shandong, and Gansu indicated that industrial and commercial gas use constituted approximately 44.86% of the client base in 2025, significantly higher than the industry average. Inland commercial users, driven by domestic demand (in the rare earth, chemical, metal, and construction material industries), are less affected by international trade friction, leading to a hard demand for gas. On this basis, the company plans to implement tailored services through "one policy for one enterprise" to deeply tap the commercial stock market, customized transformation plans for large industrial users to maximize natural gas supply efficiency. Transmission resistance for pricing in commercial users is low, and the elasticity for restoring gross margins is high; this provides the strongest compared to coastal, export-oriented city gas providers and serves as the most solid demand-side support for gross margins reverting to reasonable ranges. TIAN LUN GAS stated that in the second half of the year, it will continue to broaden multi-source procurement channels, dynamically adjusting long-term contracts and spot sources to hedge upstream gas price volatility through refined procurement; it will closely monitor terminal gas price linkage policies, ensure smooth price transmission, stabilize reasonable price differentials, and guarantee robust profitability for its main business. Alongside gross margin restoration, the dual driving engines on the scale side are also pushing forward. In the first half of 2026, TIAN LUN GASs total gas sales volume significantly outperformed the nationwide apparent consumption, demonstrating strong resilience. In the second half, the company will focus on "refined operations for existing users and tapping the potential of commercial gas use," capitalizing on the hard demand from inland industries driven by domestic consumption to solidify the sales gas foundation; at the same time, it will "seize urban renewal opportunities to expand residential users and promote gas swaps for non-residential users supported by high LPG prices," activating new demand. With simultaneous advancement in stock cultivation and incremental expansion, the sales gas business is expected to develop steadily with high certainty. If the restoration of gross margins and scale growth are the "two wings" of TIAN LUN GAS's profitability recovery, then the high gross margins in comprehensive services serve as the "deciding factor" for the improvement in the companys profit quality. In the first half of 2026, the growth rate of gross profit from comprehensive services far exceeded that of revenue, directly confirming the endogenous optimization of this business structure. From the reported 235 million yuan in comprehensive service revenue and 125 million yuan in gross profit during the reporting period, it can be inferred that this segment achieves an impressive gross margin of 53.19%, well above the company's overall gross margin of 9% during the report period, highlighting the significant role this business plays in the repair of the company's profit margins. The high gross margins from comprehensive services are mainly due to the in-depth operations based on existing users, which do not require additional spending to acquire customers, allowing for higher unit profitability. This is the fundamental reason behind the gross profit growth of comprehensive services far outpacing that of the sales gas business and being almost unaffected by fluctuations in gas volume. TIAN LUN GAS stated that in the second half of the year, it will use regular household safety inspections as a service entry point and implement standardized, professional inspection services to reinforce user trust, accurately exploring diverse derivative service needs; it will progressively advance personalized gas modification services, unify construction standards and service processes, continuously optimize user experience, and build a strong reputation for quality service. At the same time, the company focuses on the smart kitchen segment, vigorously promotes its own brand, and aims to build core advantages of "safety, quality, and health," continuously enhancing the revenue contribution and development resilience of the comprehensive service segment. It is foreseeable that with over six million cumulative pipeline gas users, TIAN LUN GAS's comprehensive service segment is expected to continuously expand. As the proportion of high-margin business increases, the contribution of this segment to TIAN LUN GAS's profits will shift from "adding icing on the cake" to becoming a "profit pillar," thus enhancing the value content of TIAN LUN GAS's high-quality development. Summary: What the market should pay attention to in TIAN LUN GAS's interim performance is not just a few isolated growth figures, but a closing operational flywheel: steady growth on the scale front has afforded time and space for structural transformation; the ongoing structural optimization, in turn, has accumulated momentum for profit recovery. The core driving force of this flywheel stems from the synergistic effects of dual engines: "using gas to promote comprehensive services and using comprehensive services to facilitate gas" has formed a complete closed loop, indicating that the company is accelerating its upgrade from a single energy supplier to a comprehensive operational service provider covering the entire lifecycle needs of users, a transformation that has been substantially validated in the financial report. However, the market has yet to fully recognize TIAN LUN GASs asset quality and transformation effectiveness. Currently, the companys price-to-book (PB) valuation is at a historical low, significantly undervaluing its true worth. Moreover, stable shareholder returns further emphasize TIAN LUN GASs long-term value for investment. In the first half of 2026, the company achieved core profits of 97 million yuan and the board proposed an interim dividend of 3.48 fen per share, corresponding to a 35.0% dividend payout ratio of core profits, demonstrating the company's unwavering commitment to returning value to shareholders. Additionally, since 2026, TIAN LUN GAS has consistently repurchased shares within the range of 2.8 to 3.4 Hong Kong dollars, having accumulated 6.615 million shares at a total expenditure of nearly 20 million Hong Kong dollars, all of which have been canceled. The management is actively supporting the recovery of the companys intrinsic value through "real money" buybacks at low price levels and firmly backing the stabilization and recovery of the fundamentals in the future.