Anxin International released a research report stating that China Resources Gas (01193) is a powerful gas distributor in China. Net profit to mother after deducting the one-time factor achieved rapid growth in the first half of the year, and the growth rate was better than that of peers. Among them, the gas distribution business performed well, and the sector's performance increased by more than 31%. In addition to a 5.3% increase in gas sales, a sharp recovery in gross margin (+0.04 yuan/square YOY) also contributed. Among them, it has also benefited from a sharp drop in gas sales costs, which shows the company's good control over gas sources. Furthermore, the company's cash flow situation was good, and free cash flow increased sharply in the first half of the year. The company's dividend payout ratio was attractive. The mid-term dividend was HK25 cents per share, a significant increase over the previous year. In view of the company's steady operation and good dividend payout ratio, investors are advised to pay attention.

Incident: The company achieved revenue of HK$52.08 billion in mid-2024, up 7.7% year on year; realized net profit of HK$3.46 billion, down 2.5% year on year, but excluding one-time income, realized profit to mother of HK$3.46 billion, up 21.2% year on year. Achieved free cash flow of HK$1.9 billion, a significant year-on-year increase of 562.3%.

Anxin International's main views are as follows:

Retail gas sales continued to expand, up 5.3% year over year.

The company achieved 20.9 billion square meters of gas sales in the first half of 2024, an increase of 5.3% over the previous year. The increase in gas volume was mainly endogenous. Among them, the gas sales volume of residential users was 5.76 billion square meters, up 7% year on year; the gas sales volume of industrial users was 9.66 billion square meters, up 3.7% year on year; commercial user gas sales volume was 5.01 billion square meters, up 8.1% year on year; and the gas sales volume of automotive users was 0.47 billion square meters, down 8.4% year on year. Industrial users account for the largest share of gas volume, accounting for about 46.2% of retail sales. The metal products industry and general equipment manufacturing industry saw the biggest increase in gas volume in the first half of the year, while the ceramic glass and some non-metallic mineral products industries are expected to drop the most due to the impact of real estate. The company expects the annual growth of industrial gas consumption to be in line with the GDP growth rate, around 5%.

The gross margin improved further, and the profit of the gas sales sector increased sharply by 31.3%.

The company's gross sales margin continued to improve in the first half of the year, achieving 0.54 yuan/square meter, a year-on-year increase of 0.04 yuan/square meter. The profit from the gas sales business was HK$4.75 billion, a sharp increase of 31.3% over the previous year. The improvement in the company's gross margin benefited from the reduction in air source costs. The company's average gas source cost in the first half of the year was 2.94 yuan/square meter, down 0.14 yuan/square meter year on year, while the gross margin for residents also improved significantly compared to last year. In terms of gas sources, the company also independently purchased a ship of 0.063 million tons of LNG in stock in the first half of the year. The price was 100-200 yuan/ton lower than the domestic market price, which enriched its own natural gas resource pool. In addition, the company also relies on a huge terminal market to develop natural gas spot trading malls and gas source networks dominated by buyers' needs, and restructured the gas source procurement business chain through digital means to enhance the bargaining power and coordination capabilities of gas sources. Up to now, more than 160 project companies and 190 suppliers have registered on the GCC network. Since its launch more than a month ago, the gas volume has exceeded 45 million square meters, and the transaction amount is 0.15 billion yuan.

The integrated services business and integrated energy business continued to grow rapidly.

In the first half of the year, the company's integrated services revenue was HK$1.77 billion, up 20% year on year; segment profit was HK$0.76 billion, up 22.1% year on year. The market share of kitchen appliances and heating increased from 8.7% to 9.0%, the market share of insurance agents increased from 25.6% to 25.8%, and the average income of home tenants increased from 54.2 yuan to 55.1 yuan. Meanwhile, the company's integrated energy business achieved revenue of HK$0.83 billion, up 38% year on year, and gross profit of HK$0.16 billion, up 84.3% year over year. In the future, the company will continue to develop its dual integrated business and maintain rapid growth.

The connectivity business is still affected by real estate.

In the first half of the year, 1.031 million new households were connected by residents, a year-on-year decrease of 23.1%. The company's connectivity business is still affected by real estate, and it is expected that achieving the annual guideline of 3 million households will present some challenges.

The mid-term dividend was greatly increased and continued to give back to shareholders.

The company paid HK25 cents per share in mid-2024, an increase of 66.7% over the previous year. The company's dividend payout ratio was 50.3% last year, and the dividend payout ratio increased steadily. It is expected that there is still room for further improvement in dividend payout rates throughout this year.

Risk warning: gas demand falls short of expectations; gross falls short of expectations; connection completion falls short of expectations; LNG processing volume falls short of expectations.