【公司研究】天伦燃气 (1600 HK) – 上半年盈利超预期,下半年维持高增长

Summary. TLG’s 1H19 net profit beat our estimate by 7.2%. Solid performance was mainly driven by better-than-expected CTG construction and admin expenses control. We believe a robust gas distributor image with solid earnings performance will trigger TLG’s re-rate. Maintain BUY with TP raised to HK$10.82.

   

  • 1H19 earnings surged 88.1% YoY. Revenue surged 65.9% YoY to RMB3,150mn, driven by 1) higher gas ASP, 2) 22.5% city gas sales volume growth and 3) new contribution from CTG conversion. Admin costs to sales rate was managed to decline by 0.93ppt to 3.39%. Net profit was RMB405mn, up 88.1% and beat our estimates by 7.2%. TLG declared an interim dividend of RMB11.42 cents with payout ratio raised by 3ppt to 28%. We believe TLG delivered a solid 1H19 performance and reached mgmt. target guidance.

   

  • CTG conversion is now proven sustainable. TLG completed 250k household CTG conversion during 1H19. Mgmt. maintained 600k conversion with an average CTG connection fee of ~RMB2,700 per household target unchanged in FY19. TLG collected above RMB700mn (vs. RMB1bn CTG revenue generated in FY18) CTG receivables in 1H19. Based on ~6-9month CTG receivable turnover expectation, mgmt. saw no cash flow pressure from the business. Given TLG’s prudent CTG execution pace and smooth receivables collection, we believe TLG’s CTG business is sustainable in the coming 3-5 years.

   

  • Gas sales to maintain rapid growth in 2H19. City gas sales volume reached 475mcbm with YoY growth of 23.3%. attributed 18.3% growth from organic demand and the remaining ~5% from project M&A. Gas dollar margin was squeezed slightly from RMB0.56 in FY18 to RMB0.54 in 1H19 due to gas price pass through delay in Apr. For 2H19 outlook, mgmt. remains positive based on strong gas sales growth in Jul (~30%). TLG expected dollar margin to remain stable at ~RMB0.55, and reiterated full year sales volume to increase by 25%.

  

  • Accelerating M&A for emerging opportunities. raised CAPEX budget from RMB700mn to RMB1bn for M&A opportunities. We expect accelerating M&A pace will likely to boost earnings growth in 2020/21.

  

  • Reshaping image as robust city gas Company. We revise FY19-21E EPS estimates up by 5.2%/7.2%/9.8% to RMB0.95/1.06/1.19, respectively. We believe TLG is now reshaping image as a robust city gas distributor with national presence. Raise TP from HK$10.54 to HK$10.82. Reiterate BUY rating.
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