Jul & Aug gas sales vol. is solid at >25% yoy growth, tracking with full year growth guidance; 3Q21 gas dollar margin recovering
Rural connection and subsidy collection to pick up in 2H21
Closer tie with Zhuhai Port (000507 CN, NR) on photovoltaic project development
Strong vol. growth offset by softer dollar margin
Its Jul & Aug retail gas sales volume maintained fast growth at >25% yoy (1H21: +30% yoy). Tian Lun is upbeat on its gas sales outlook for 2H21 and its full year guidance of +25% yoy. Foreseeing tight winter supply, management has begun to approach LNG suppliers at this point in time, earlier than previous years (last year LNG accounted for 11% of its total gas sales vs. 5% under normal circumstances). 3Q21 gas dollar margin has rebounded from its 1H21 level (i.e. RMB0.51/cu m), winter likely sees seasonal gas dollar margin pressure.
Target to connect 0.5mn rural households in 2021E
Tian Lun expects the rural coal-to-gas connection pace will pick up in 2H21E (i.e. 0.14mn in 1H21) and targets to connect 0.5mn rural households for 2021E. Going forward, it plans to expand its rural connection work from Henan to Gansu province, and targets to connect 0.6mn rural households per year in the next 2-3 years. Its subsidy collection process resumed normal in 2Q21 and it expects the accumulated collection ratio will return to 70% in 2021E (vs. 62% in 1H21).
Exploring new energy with Zhuhai Port
In July, Zhuhai Port Co., Ltd. (000507 CN, NR) purchased 11.96% stake in Tian Lun and entered into a strategic cooperation to develop new energy business, mainly photovoltaic projects on Tian Lun’s Henan rural households, for which Zhuhai Port will provide capital, while Tian Lun will take up the operation and maintenance role after their commencement, with planned construction to begin before the end of 2021 with revenue contribution in 2022.
Valuation
Per Bloomberg consensus, Tian Lun is trading at 5.8x FY21E P/E vs. industry average of 13.3x, with FY21-FY23E EPS CAGR of 11%. It is estimated to have 5.4% dividend yield (industry average 3.3%).