CICC released a research report stating that it maintains a "outperform industry" rating on ENN Energy (02688), with unchanged profit forecast for 2024/2025, and a target price of HK$70. ENN Energy announced on September 23 that the $0.1 billion share purchase plan announced in September 2023 has been fully implemented. The company plans to use up to HK$0.3 billion to continue repurchasing company stocks for employee incentives. In addition, the company plans to use up to HK$0.3 billion to repurchase listed company stocks for cancellation.

CICC's main points are as follows:

Continuing with stock repurchases sends a rather bullish signal.

In addition to the additional repurchase of stocks not exceeding 0.3 billion Hong Kong dollars for employee rewards, the company is implementing for the first time a cancellation-type repurchase of no more than 0.3 billion Hong Kong dollars. The bank believes that the management has shown a positive attitude towards the company's long-term value to the market.

The 2024 estimated dividend yield is quite attractive, and the ability to pay dividends still has a lot of room for improvement in the medium to long term.

With the current stock price, the 2024 estimated dividend yield of ENN Energy is around 5.9%. The bank believes it is quite attractive to long-term investors. In addition, based on the current urban gas industry development, the bank believes that the company's capital expenditures could be reduced to 5-6 billion yuan per year in the medium to long term. Reducing capital expenditures and improving the profitability of natural gas retail business may increase the company's free cash flow to 6-7 billion yuan per year in the medium to long term, indicating significant room for improvement in the company's medium to long-term dividend payment capability.

The regression of public utility attributes and the improvement of dividend-paying ability may be bullish for the medium and long-term industry valuation center to move higher.

The bank believes that starting from the second half of 2021, the city gas industry valuation has been systematically reduced from 15-20x P/E to the current approximately 8-10x.

The main reason for the P/E ratio in the market expectations: 1) Due to the unsmooth cost transmission, the business model of city gas enterprises is cyclically strengthened; 2) The connecting business will continue to be under pressure due to the downward cycle of the real estate industry.

At the current point in time, the bank believes: 1) Benefiting from the increase in the proportional price of civil gas and the return of natural gas prices to a reasonable range, the public utility attributes of gas companies are gradually returning. 2) Due to continued pressure in the real estate industry, most gas companies have made strategic adjustments, by reducing the scale of expansionary capital expenditure, emphasizing the improvement of the return level of stock projects, and are expected to achieve a steady increase in free cash flow and dividend scale. The bank believes that in the medium term, the return of public utility attributes and the improvement of dividend ability are expected to drive the industry valuation center of gas companies to repair to 15x P/E ratio.

P/E up and down.