TLG reported 1H21 core profit of RMB449mn, up 5.9% YoY. The results looks a bit sluggish compared with peers, but still in line with our estimates (1H21E: RMB462mn). Retails gas volume surged 30.1% YoY to 742mcbm, while gas dollar margin experienced a squeeze to RMB0.51/cbm due to gas costs hike during winter and delayed gas costs pass-through to the residential clients. Mgmt. guided down core earnings outlook from 15% to 10-12% YoY on conservative gas margin expectation. We are not too concerned on the guide down, as we think TLG’s project M&A progress is still on track, and newly announced share incentive scheme is likely to boost future earnings growth. Trading at 6.1/5.9x FY21/22E PER, TLG’s valuation is not demanding and still have ample room to re-rate. Maintain BUY with TP unchanged at HK$9.90.
1H21 core earnings increased by 5.9% YoY. Revenue ascended 20.2% YoY to RMB3.6bn, mainly driven by piped gas sales. COGS surged 26.5% YoY, faster than top line movement, driven by gas cost hike caused gas dollar margin squeeze. Major expenses were in line, and TLG recognized RMB78mn non-recurring gains from FX and fair value adjustment. Net profit was RMB547mn, up 37.4% YoY. TLG declared interim dividend of RMB0.134/share, reflecting core EPS payout ratio increase to 30.2%.
Rapid gas volume growth to sustain in 2H21E. Retail gas sales volume surged 30.1% YoY, driven by strong gas demand which is led by C&I gas sales growth of 36.1% YoY during the period. TLG maintained FY21E retails gas volume target at 25% growth, implying strong performance to sustain in 2H21E.
Residential connection pace to pick up. TLG connected 287k new gas users, down 24.6% YoY, mainly due to connection decline from township users. The Connection pace was a bit lagging behind, however, connection revenue contribution remained flat as 1H20. Mgmt. explained the Company made some ancillary pipeline construction for township projects, and maintained full year connection target unchanged at 5mn users by year end, implying connection pace to accelerate in 2H21E.
Share award scheme to boost future earnings. TLG plans to purchase up to 5% issued shares for share award for directors, senior management and employees. We believe the share award scheme implies 1) TLG to buy back shares from the market; and 2) future earnings growth to accelerate as management interest is in line with shareholder value.
Maintain BUY with TP unchanged at HK$9.90. We think TLG made significant corporate action in 2021, including introducing Zhuhai Port (000507 CH, NR) as strategic investors and adopting share award incentives. We are still optimistic on TLG’s growth momentum though 1H21 earnings was a bit sluggish. We think valuation is attractive with ample room for a re-rating.