Xincheng Securities: Controlling Costs to Ensure Growth Maintaining Binhai Investment (02886) “Buy” Rating Target Price of HK$1.58
The Zhitong Finance App learned that Xincheng Securities released a research report saying that Binhai Investment (02886) announced its 2025 interim results. Due to the warm winter and China's economic recovery, sales volume and connectivity in the first half of the year were affected, putting pressure on revenue and gross profit; however, after a series of cost reduction and efficiency measures, the company maintained profit growth. Excluding the one-time impact of the warm winter, obvious correction of gross margin and rapid growth in value-added services, and the possibility that the connectivity business will bottom out, Xincheng Securities expects Binhai Investment's EPS to grow steadily in the 25-27 year period, maintain a “buy” rating in line with the increase in dividend payment policies. The target price is HK$1.58.
The gas sales business was affected by the warm winter, but the gross margin was significantly fixed
According to Xincheng Securities, in 20251H, the company's total gas sales volume fell 14% year on year to 1.14 billion square meters. Among them, gas management fell 12% year on year to 830 million square meters, and gas pipe gas fell 18% year on year to 310 million square meters year on year. The main first-quarter gas supply was reduced by 118 million cubic meters due to factors such as changes in market demand brought about by warm winters and warm winters and the suspension of maintenance by some major customers during the year.
However, the company's gross margin level has been clearly fixed. The company began optimizing the upstream and downstream industrial chains last year. The top priority was to comprehensively optimize the gas source cost, and this year it will continue to optimize the gas source structure. At the beginning of the year, the company said that Sinopec's gas prices were drastically lowered this year. About 55% of the 20251H gas source structure came from three barrels of oil, mainly because Q1 was still the old contract year, but the overall gross margin and urban gas average gross margin both increased by 0.07 yuan/square meter, reaching 0.44 yuan and 0.50 yuan respectively, and the gross margin of gas management and sales increased 1.1 percentage points to 6.9%. The company expects 70% of the year's gas volume to come from three barrels of oil. It believes that it can meet the standards throughout the year, and the gross margin can be continuously fixed, which will greatly improve the profitability of the gas sales business. Since the gas management business accounts for 61% of the company's gross profit, rising gross margin is important to the company's profitability.
Although the company's total 1H gas sales declined, mainly due to a 27% drop in total gas sales during the Q1 warm winter season, total gas sales increased 13% year-on-year in Q2, indicating that the company's gas sales business is still growing. Without the warm winter factor in 20251H, the total gas sales volume will be about 1,258 million square meters, a decrease of 5.4% over the previous year. Based on a comprehensive gross margin of 0.44 yuan, the company's gross profit is about HK$366 million. Further, it is believed that it will make the company's net profit back to mother higher.
Value-added services were eventually incorporated into the main business, and both revenue and gross profit increased 7%
Since the launch of the company's value-added services in 2021, it has been developing rapidly. Revenue and gross profit for 20251H increased 7% year over year, to record HK$37.67 million and HK$25.4 million respectively, and gross margin remained at 67.4%. As a result, it was officially incorporated into the main business, increasing the company's overall gross profit margin.
Of the four value-added business categories, all three categories recorded an increase in gross profit, including a 91% year-on-year increase in gas appliance sales, mainly due to sales of the own-brand “Taiyuejia” products, which greatly increased gross margin; a 14% year-on-year increase in gross margin; and a 61% year-on-year increase in non-residential maintenance business. Gross profit for small-scale installations fell 17% year over year due to the impact of the real estate market.
The company continues to propose new developments in value-added services. Among them, in order to solve the problem of declining gross profit for small-scale installations, a new kitchen decoration business will be added in 2025, and according to the company, the gross margin can reach 45%. Since China's real estate market has yet to recover, many Chinese households are reducing the purchase of new homes and preferring to renovate their original homes. Therefore, Meifu Kitchen has huge market potential, and it is expected that the gross profit situation of small-scale installations will improve in the second half of the year.
The company also stated that it will launch an e-commerce platform at the end of September, including three major systems, a store system and an after-sales service system to solve the pain points of offline business management; and a mobile online shopping mall to open up online sales channels. The entire system will improve the development of value-added services. Since Binhai's investment volume is small, customer contact is not comprehensive enough, and developing online sales channels can enable the company's products to reach more potential customers. It is expected that e-commerce platforms will increase the scale of value service revenue in the early stages of launch, but gross profit may be affected by initial investment, but it is still worth hoping for in the long run.
The impact of the connectivity business on the company's profits is expected to be close to bottoming out
The mainland real estate market is still at a low point, with the company's 20251H revenue falling 25% year on year to HK$125 million, and gross profit falling 30% year over year to HK$71.9 million. The number of new connected households was 28,600, down 32% year on year, but compared with the 20242H number of new connected households, there was a slight increase from month to month; in terms of gross profit of the connection business, the 20242H was about HK$92.45 million, down 22.2% from the previous year, and the decline was also reduced. The impact on the company's profit is expected to be close to bottom.
Pressure reduces financing costs and makes more reasonable use of funds
The company achieved remarkable results in reducing financing costs. By the end of June 2025, the share of RMB in the company's loan currency structure had increased to 82%, and the share of higher-interest US dollar loans fell to 18%; the 20251H financing cost was HK$45.49 million, a decrease of 39% over the previous year.
The company issued a total of two loan related announcements in 2025, including a loan of 300 million yuan from various banks in March, and a loan of 200 million yuan from the Agricultural Bank of China in July. The interest rate for the two loans was significantly lower than the one-year loan market quoted interest rate (LPR). In April of this year, the company took the initiative to fully repay the RMB 220 million section of a syndicated loan with a fixed interest rate of 6%. On the one hand, it shows that the company is systematically replacing high-interest loans with low-interest loans. On the other hand, with an interest rate of 6%, the annual interest expenditure is about 13.2 million yuan, which is about 13.2 million yuan in interest expenses, which is about the same level of interest expenses for the newly created 500 million yuan loan. This is the same level of interest expenses, but the amount of available capital has increased by about 1 times. It helps the company's cash flow and also has more capital for business development.
Sinopec fulfills shareholder assistance responsibilities
Tianjin Teda Binhai Clean Energy Group Co., Ltd., a subsidiary of Binhai Investment, received a credit of RMB 150 million from the Tianjin branch of Sinopec Finance Co., Ltd., a subsidiary of Sinopec, the second shareholder, to settle the natural gas purchase payments from Tianjin Clean Energy. This model provides low-cost capital for Binhai Investment, and also optimizes the company's financing structure and financial costs, thereby strongly supporting the Group's operational and development needs. It can be seen that Sinopec is also interested in providing assistance to expand and strengthen coastal investment.
According to Xincheng Securities, the company's 20251H performance was mainly affected by the warm winter. The company adjusted its annual guidelines, and the annual gas management sales target remained unchanged at 9%, while the annual gas management target decreased by 13%. Although the gross margin of the gas pipeline business reached 87%, due to its small volume, accounting for only 7.6% of the overall gross profit, it is estimated that there will be no significant impact on the annual profit.
If the weather remains normal this winter, it will bring strong growth to the company's gas sales. In line with the correction of gross margin, the overall gas sales business revenue and gross profit are likely to increase significantly year-on-year in 2025. Looking ahead to the full year of 2025, as long as the 2025 2H connection business remains unchanged at the 2025 1H level, and the gross profit growth of value-added services reaches the target of 20% and grows to about HK$65 million, the company's profit is expected to increase significantly next year.
Xincheng Securities expects the EPS of Binhai Investment to be HK$0.198 and HK$0.218 respectively. Based on the company's current price-earnings ratio of about 8 times, Xincheng Securities gave Binhai Investment a “buy” rating. The target price was about HK$1.58. Based on the closing price of HK$1.13 on September 3, there is room for increase of about 39.8%.