TLG realized core net profit of RMB895mn in FY20, up 10.4% YoY, in line with mgmt. guidance and our estimates. In 2021E, TLG guided core earnings to increase 15% with more than 800k household residential customer growth and 25% retail gas volume expansion. We think TLG’s earnings growth has high visibility. On the back of new projects’ acquisition and new business opportunities for township project synergies in Gansu Province, it seems the guidance was a bit conservative. TLG’s valuation is catching up but still with an obvious gap with leading peers. We lift our TP by 19.1% to HK$9.90 based on 8x forward P/E. Maintain BUY.
Core profit surged 10.4% YoY. TLG realized FY20 revenue of RMB6,440mn, flat as FY19. GP was RMB1,786mn with a GPM of 27.7%, up 1.7ppt YoY. Major expenses maintained in good control while other gains recorded RMB160mn mainly on FX gain. TLG read net profit of RMB1,044mn, up 32.2% YoY. Stripping out non-recurring items, core profit was RMB895mn, up 10.4% YoY. TLG declared a final dividend of RMB0.153 per share, making full year dividend of RMB0.267, reflecting 30% dividend pay-out to core profit.
Gas sales volume to resume rapid growth pace. TLG reclassified gas sales categories following the same standard as gas distributing peers. Overall retail gas sale volume increased 7.9% YoY to 1,218mcbm, led by residential/C&I gas sales volume growth of 20%/4.9% YoY, respectively. In 2021E, mgmt. guided retail gas sales to increase 25% YoY. On the back of new projects acquisition from Gansu province as well as low base in 2020, we expect retail/C&I gas sales volume to surge 27.4%/29.0% respectively, leading to an overall retail gas volume increase of 27.3% YoY in 2021E.
Connection business still a key growth driver. TLG connected 835.7k accounts during 2020, of which city residential accounted for 265.6k households, township connection accounted for 566.6k household, and C&I connection also read 3,471 accounts. In 2021E, mgmt. guided total connection not less than 800k accounts. Considering increasing township connection supports in Henan and potential project acquisition synergies for township connection opportunities in Gansu, we think the target would be a bit conservative. We expect TLG will have total connection to reach above 867k in 2021E.
Lift TP to HK$9.90, maintain BUY. Based on mgmt. guidance update for more optimistic gas sales volume and margin as well as more conservative connection outlook, our earnings forecasts in FY21/22E is trimmed slightly by 2.4%/0.8%. We still see high earnings visibility for TLG with 18.7-19.0% ROE in 2021-23E. Based on 8x FY21E P/E, our TP is lifted by 19.1% to HK$9.90, maintain BUY.