20180524-招商证券_香港_-新奥能源-02688.HK-1Q18_operation_on_track_7页_1mb

ENN ENERGY (2688 HK) Summary

Core Content

ENN Energy (2688 HK) is a company that has shown solid performance in its operations and is expanding its integrated energy business. The report highlights the company's progress in the first quarter of 2018, its strategic initiatives, and the analysts' outlook for the company's future.

Main Points

• 1Q18 Operational Performance:

  • City gas sales volume increased by more than 20% YoY.
  • Gas dollar margin rebounded to RMB0.62/cu m from RMB0.6/cu m in 2H17.
  • The pass-through rate of winter gas cost hike increased from 50% to 70-80% in 1Q18.
  • Management aims to maintain a stable dollar margin of RMB0.63/cu m in 2018.

• Integrated Energy Business Expansion:

  • Management targets to add 60 integrated energy projects with a capex of RMB1.2bn in 2018.
  • Combined with existing projects, energy sales (electricity, steam, hot water) are expected to reach 6bnkwh in 2018, generating RMB2bn in revenue.
  • Leveraging its customer base, the company projects energy sales to quintuple to 30bnkwh and revenue to reach RMB10bn by 2020E.
  • Gross margin is expected to improve to 10-15% once the projects mature in 2-3 years.

• Rating and Target Price:

  • The company is maintained with a BUY rating.
  • The DCF-based target price is raised to HK$88.0, an increase of 11.5% from the previous price of HK$78.9.
  • The shares are trading at a 2019E P/E of 14.0x, close to its 5-year historical P/E average of 13.9x.
  • Valuation is considered justified based on the positive outlook.

Key Information

Financials (Year ended 31 Dec, RMB mn)

Target Price and Earnings

1Q18 Performance

Catalysts and Risks

• Upward Catalysts:

  • Stronger gas demand
  • More cost savings from LNG import
  • Faster development of integrated energy business

• Downside Risks:

  • Slowdown in gas demand
  • Delays in greenfield project commissioning
  • Inability to pass through increased costs to end users during the winter season

Financial Summary

Balance Sheet

Cashflow Statement

Profit & Loss Statement

Financial Ratios

Investment Ratings

Accelerating Construction of Gas Storage Facilities

• The National Development and Reform Commission (NDRC) released "Opinions of accelerating the construction of gas storage facilities and improving the market mechanism for ancillary services for gas storage and peak load regulation" to promote gas storage construction.
• By 2020, upstream gas suppliers and city gas operators are required to own gas storage facilities equivalent to 10% of their annual contracted sales and 5% of their annual gas usage, respectively.
• ENN Energy currently has a gas storage capacity of 91mn cu m, including 46mn cu m LNG tanks and 45mn cu m LNG trucks.
• The company plans to rent its parent company's gas storage facilities at Zhoushan LNG terminal (~100mn cu m capacity) and spend RMB300-600mn (~5-10% of capex) to build storage facilities in 2018.
• The increasing gas storage capacities are expected to help stabilize gas costs in the winter season.

Conclusion

ENN Energy is showing promising performance and strategic expansion, with a focus on integrated energy projects and gas storage facilities. The analysts maintain a BUY rating and increase the DCF-based target price to HK$88.0, indicating positive expectations for the company's future. The report outlines the company's financial performance, strategic initiatives, and the factors that could influence its valuation and investment potential.