Citigroup: KUNLUN ENERGY (00135) reported lower-than-expected net profit last year, with a decrease in retail natural gas unit profit.

Citigroup's research report maintains a "buy" rating on Kunlun Energy (00135) with a target price of 8.4 Hong Kong dollars. Kunlun Energy's net profit last year fell by 10.3% year-on-year to 5.346 billion RMB (the same below), which is 12% lower than market expectations. Core profit fell by 6.9% year-on-year to 5.923 billion RMB. The full-year dividend per share remains at 31.58 cents, with a dividend payout ratio increasing by 5.2 percentage points to 51.1%. It is worth noting that the pre-tax profit of the natural gas sales business fell by 17.6% year-on-year to 6.756 billion RMB, and the unit gross profit per cubic meter fell by 0.02 RMB to 0.45 RMB. In contrast, the unit gross profit of China Gas and TG Smart Energy in the same period increased by 0.02 RMB to 0.54 RMB and 0.58 RMB respectively. The report indicates that the natural gas sales volume increased by 9.4% year-on-year to 59.26 billion cubic meters, with retail gas volume increasing by 2.3% to 33.51 billion cubic meters, and distribution and trade gas volume increasing by 20.2% to 25.75 billion cubic meters. In retail natural gas sales, industrial gas increased by 6.2% to 26.05 billion cubic meters, residential gas decreased by 4.4% to 3.45 billion cubic meters, commercial gas decreased by 2.3% to 2.92 billion cubic meters, and gas from refueling stations decreased by 33.5% to 1.09 billion cubic meters. The decrease in unit gross profit is mainly due to the average selling price falling by 0.11 RMB to 2.73 RMB per cubic meter, while the average purchase cost fell by 0.09 RMB to 2.28 RMB per cubic meter. The total gasification and loading volume of the two liquefied natural gas receiving stations increased by 3.7% year-on-year to 16.527 billion cubic meters, with an average utilization rate increasing by 3.2 percentage points to 90.8%. The processing volume of 14 liquefied natural gas plants increased by 5.3% to 3.737 billion cubic meters, with an average utilization rate increasing by 3.2 percentage points to 67.2%, but revenue fell by 11.8% to 3.88 billion RMB, reflecting a decrease in average selling price. Liquefied petroleum gas (LPG) sales volume increased by 6.3% to 6.15 million tons, but revenue fell by 2% to 25.091 billion RMB. Kunlun Energy's operating cash flow last year was 12.585 billion RMB, a slight decrease of 1.2% year-on-year, with capital expenditure decreasing by 4.6% to 6.257 billion RMB, and the net debt ratio decreasing by 2.7 percentage points to 18.8%. The average cost of debt decreased to 2.54%.