Since 2024, the Hong Kong gas sector has not risen by more than 1% year to date, and there has been a clear divergence among the divisions within the sector, with both sharp rises and falls. Tianlun Gas (01600) is the “brightest star”, with a year-on-year increase of 17.44%, and the biggest increase of over 67% during the year, “excelling” in the entire sector.

On March 28, Tianlun Gas revealed to the market that its stock price will continue to be strong this year with its steady 2023 performance. According to the data, Tianlun Gas's revenue during the reporting period was 7.725 billion yuan, up 2.4% year on year, and net profit for the period was 506 million yuan, up 7.89% year on year, achieving both revenue and profit growth.

At the same time, Tianlun Gas maintains a consistent dividend payment style and actively rewards shareholders. The company announced a final dividend of RMB 10.82 per share for 2023, with a cumulative dividend of 17.64 points per share for 2023, maintaining a stable dividend.

If Tianlun Gas's financial report is further analyzed, we can have a clearer and deeper understanding that its gas business is expected to continue to grow and that other businesses are expected to accelerate volume.

Customer growth boosts sales volume, and other businesses ushered in accelerated development

Compared with 2022, the gas industry's business environment in 2023 has changed markedly. In mid-2022, due to the impact of the pandemic, the natural gas industry recorded its first decline in annual consumption in nearly 20 years. However, after entering 2023, China changed from an abnormal situation during the epidemic to normal operation, and the domestic economy rebounded steadily, which led to the return of the natural gas industry to a growth trajectory. According to data from the National Development and Reform Commission, the country's apparent natural gas consumption in 2023 was 394.53 billion cubic meters, an increase of 7.6% over the previous year.

Taking advantage of the industry's recovery trend, Tianlun Gas has developed a series of layouts around the three major business lines of gas sales, engineering installation and service, and other businesses to promote the steady development of each business line, thus recording annual results of both revenue and net profit growth.

In terms of the gas sales business, revenue during the reporting period was 6.149 billion yuan, an increase of 7.3% over the previous year; it is worth noting that the revenue share of the gas sales business increased to 79.6%, a further increase from 75.9% in 2022, and the revenue structure was continuously optimized.

The increase in gas sales revenue was mainly due to an increase in gas sales volume. During the reporting period, the total sales volume of Tianlun Gas was 2,085 billion cubic meters, an increase of 9.1% over the previous year. Among them, retail sales increased 4.5% year over year.

The increase in retail gas volume is mainly due to Tianlun Gas's active development of new customers. During the reporting period, Tianlun Gas's urban combustion residential users increased by 8.6% to 3.593,900. At the same time, the company continued to cultivate industrial and commercial users on the dominant circuit, further tap the potential of industrial and commercial users, and formulate flexible and effective industrial and commercial development strategies, thus increasing the number of industrial and commercial users by 10.7% to 46,800. Driven by the growth of residential users and industrial and commercial users, the total number of gas users of Tianlun Gas also increased by 5.8% to 5.5999 million households.

Due to the decline in the share of revenue from the coal-to-gas business in rural Henan, the revenue during the reporting period was 1,045 billion yuan, which is a certain decline over the previous year. However, in the face of potential business challenges, Tianlun Gas grasped the opportunity of urban renewal and development and implemented flexible development strategies to ensure a stable profit level of the business. The revenue from urban combustion project installation and service during the reporting period was 854 million yuan, an increase of 1.9% over the previous year, showing the resilience of Tianlun Gas.

Value-added business maintained double-digit growth. Tianlun Gas continued to optimize the “product+service” system during the reporting period to enhance after-sales service capabilities, which increased revenue from value-added business by 11.5% to 371 million yuan.

Promote the steady growth of the gas business and accelerate the exploration of other business values

Obviously, 2023 will be the year when Tianlun Gas regains its growth, but if we look at the development of Tianlun Gas in terms of trends and industry levels, the new era of Tianlun Gas has only just begun.

Since the “dual carbon” strategy was proposed in 2020, China's energy transition has entered the fast track, and vigorous development of renewable energy and low-carbon energy has become an effective gripper for achieving energy transformation. Based on a basic judgment on China's current energy structure optimization process, natural gas will still play an important role in the energy transformation process with its environmental advantages.

The Shanghai Shenyin Wanguo Securities Research Institute said that natural gas is of great significance in improving China's energy consumption structure in the “double carbon” era. It is estimated that by 2030, both sides of China's natural gas supply and demand will grow to nearly 550 billion cubic meters, and there is still more than half of the 394.53 billion cubic meters in 2023. That is, from 2023 to 2030, the compound annual growth rate of China's natural gas sales is about 4.8%, and the entire industry will continue to grow steadily.

In terms of its core business gas, Tianlun Gas will continue to enhance the company's competitive advantage in multiple dimensions. The first is to carry out in-depth exploration of the gas inventory business, vigorously expand new users, especially industrial and commercial users, and further increase the share of industrial and commercial gas sales business in order to increase the number of customers and continuously increase retail gas volume.

Second, Tianlun Gas will enhance the competitiveness of gas sources, continue to carry out gas source optimization work, and obtain sufficient gas sources at low prices to the greatest extent possible from various perspectives such as resource acquisition, pipeline construction, and gas storage and peak control construction. On this basis, the company further rationalized terminal gas prices and raised the gas price compliance ratio for residents, while non-resident users should do everything possible to achieve a 100% compliance ratio, and continue to optimize gross margins through multiple measures.

While the multi-dimensional layout promotes the steady growth of the core gas business, Tianlun Gas will further explore the growth value of other businesses. In terms of value-added services, Tianlun Gas will expand existing gas-related safety products and services into the fields of home maintenance, healthy living, and safety services through its own brand construction and digital intelligence services. At the same time, the company will expand online+offline diversified channels and a “product+service” system to accelerate the continuous penetration of value-added services within the company's customer base.

As of 2023, Tianlun Gas has added more than 280,000 new urban fuel residential users, and the number of repeat users is close to 5.6 million. A stable number of users will lay a solid foundation for Tianlun Gas to accelerate the development of value-added services.

Overall, the future development path of Tianlun Gas is very clear. In the gas industry that continues to grow steadily, Tianlun Gas will build core competitiveness from multiple dimensions such as new customer expansion, gas source optimization, and price rationalization to achieve steady development of the gas business; at the same time, the company will continue to explore the growth value of other businesses based on existing gas business resources, open up the company's future growth space by creating new growth points, and the development of other businesses has achieved obvious results. The business model has been opened up and will continue to contribute new performance increases to Tianlun Gas in the future. Future growth is highly certain, which is a key reason why Tianlun Gas's stock price is strong this year.

Judging from the valuation, the current market value of Tianlun Gas is only 6.8 times the 2024 PE valuation, which is significantly lower than the average value of the company's historical valuation of 12.4 times, and the PB valuation is less than 0.8 times lower than the historical average PB valuation, 1.9 times lower than the historical average PB valuation. The current value of Tianlun Gas is still undervalued. As the company's future business development continues to advance, the continuous release of performance is expected to drive the company to return to value.