China Securities International: Target Price of HK$1.42 for the “Buy” Rating for Binhai Investment (02886)

The Zhitong Finance App learned that China Securities International released a research report stating that it gave Binhai Investment (02886) a “buy” rating and predicted EPS of HK$0.20 and HK$0.22 for 2024E/2025E, respectively, with a target price of HK$1.42. The company is currently undervalued and actively rewards shareholders. It has paid dividends every year for the past 11 years. Last year, the dividend rate was around 40%, and the dividend rate was around 7%, which is expected to be very attractive to investors. Recently, the company announced a repurchase plan to enhance shareholders' confidence.

The main views of China Securities International are as follows:

Using the core area of Tianjin Binhai New Area as the foundation for development, we actively explore the downstream market.

The company mainly relies on the Tianjin region, which accounts for 70% of the gas sales volume in Tianjin (according to 2023 data, including piped gas). Using this as the basic model, it was extended outward to 8 provinces and 2 cities across the country. The customer structure is dominated by industrial and commercial users, accounting for nearly 85% (including piped gas). The company has many high-quality customers in Tianjin, fully grasping “coal-to-combustion” and gas power plant opportunities, actively developing markets, and supplying gas for Huaneng Power Plant, Huadian Southern Xinjiang Power Plant, Tianjin Junliangcheng, and Bohua Yongli Thermal Power Coal-to-Coal Combustion Project.

Outside of Tianjin, the company also has subsidiaries in Hebei, Shandong, Jiangsu, Jiangxi and other places. As the scale of business continues to expand, retail gas volume continues to grow. In 2023, it achieved 1.55 billion cubic meters of gas sales (excluding gas trade), an increase of 8% over the previous year; in mid-2024, it achieved pipe sales of 862 million cubic meters (excluding gas trade), an increase of 12.7% over the previous year.

Actively explore upstream resources and carry out gas trade.

The company's pipeline network is interconnected with Sinopec's Tianjin LNG Terminal, BeiRan LNG Terminal, Hebei Caofeidian LNG Terminal, and the National Pipeline Network Terminal. Abundant terminal resources will help the company to find low-cost gas sources in the future and increase the flexibility of upstream gas sources. In addition, the company holds 2% of Sinopec's Tianjin Wharf and has also signed natural gas purchase and sale contracts with Beijing Gas, Hebei Xintian, Datang Coal Gas, and Yonghe Guoxin to obtain more abundant gas sources, guarantee supply, and reduce procurement costs.

Value-added services have performed well and are expected to grow rapidly.

Relying on more than 2.4 million resident users, the company's value-added services and revenue are expected to usher in rapid growth. The company established its own brand “Taiyuejia”, sold gas appliances and security products, and built an online sales platform to further expand product penetration. The first half of 2024 achieved gross profit of HK$23.8 million, an increase of 31.2% over the previous year.

Risk warning: gas sales fall short of expectations; connectivity falls short of expectations; upstream gas prices are high.