Citic Securities: BINHAI INV (02886) achieved a recovery growth in profit in 2025. "Buy" rating with a target price of 1.63 Hong Kong dollars.

Sinolink Securities released a research report stating that BINHAI INV (02886)FY2025 achieved a recovery in profits through cost control and business structure optimization under the pressure of the macro environment. Sales volume increased against the market trend, value-added service revenue and gross profit both saw double-digit growth, and the effect of reducing financing costs was remarkable. Despite weak demand in the natural gas market and the continued impact of the Chinese real estate market on connection services, the company actively drove profits by controlling costs. In addition, with the commitment to increase dividends by 10% annually from 2025 to 2027, Sinolink Securities maintained a "buy" rating with a target price of 1.63 yuan. BINHAI INV's results for 2025 showed a 4.5% year-on-year increase in pipeline gas sales volume, with urban gas gross margin rising to 0.51 RMB. Value-added service gross profit increased by 13%, and comprehensive financing costs decreased by approximately 53 million RMB. As a result, the company achieved a recovery in profits in FY2025, with net profit attributable to shareholders increasing by 12% year-on-year to 206 million RMB, or 15 cents per share. In terms of business segments, BINHAI INV's sales volume increased by 4.5% in 2025 to reach 1.79 billion cubic meters, significantly outperforming the macro market and achieving 96% of its annual target. Particularly after experiencing a 26% year-on-year decline in sales volume in 2025Q1 due to a mild winter, the company's sales volume increased by 23% year-on-year in 2025Q2-Q4. This was mainly due to the effective increase in sales volume from new and existing customers. The company continued to focus on gross margin repair, mainly through optimizing gas source structure. In addition to the annual contract quantity with the three major oil companies, BINHAI INV also purchased natural gas spot at low prices in certain months, saving approximately 50 million RMB in gas procurement costs for the year. In addition, in 2025, the company implemented price adjustments for residential gas in four subsidiary companies, resulting in approximately 83% of total residential gas volume being invoiced at higher prices, thereby restoring gross margins. With the decrease in procurement costs and higher prices, the urban gas gross margin significantly improved to 0.51 RMB (including tax). In terms of value-added services, BINHAI INV's revenue and gross profit increased by 14% and 13% year-on-year to 76.15 million RMB and 50.46 million RMB, respectively, in FY2025. Since the launch of the business in 2021, the compound growth rate of gross profit has reached 34%. After establishing its own brand "Tai Yue Jia" in 2024, the company sold Tai Yue Jia gas products for the first time in 2025, further increasing the gross margin to 52.6%. In 2026, BINHAI INV's value-added services will undergo a major transformation, expanding the current four major business categories to five (smart home, home services, extended maintenance, insurance business, e-commerce services). With more diversified and targeted services, value-added services are expected to continue to grow rapidly and further increase their contribution to overall profits. In addition, in FY2025, BINHAI INV's financing costs decreased by 41% year-on-year, amounting to a reduction of 53 million RMB. This was mainly due to the full repayment of a syndicated loan of 220 million RMB in 20251H at a fixed interest rate of 6%, and signing medium-term revolving loans with multiple banks totaling 500 million RMB, all at significantly lower rates than the one-year LPR, with the borrowing volume decreasing by 7% year-on-year. After signing agreements in 2022 and 2023 to support the company's development, the two main shareholders, Tianjin TEDA and Sinopec Natural Gas, signed a "Framework Agreement on Further Deepening Strategic Cooperation to Support the Development of the Company" in March 2026. The agreement covers BINHAI INV's development needs, including gas sources, gas prices, value-added services, comprehensive energy, and increased investment efforts, all in line with the company's requirements. It is expected that BINHAI INV will receive substantial support and resources. BINHAI INV expects stable and increased gas sales volume in FY2026 to reach 2.5 billion cubic meters, with a 110 million cubic meter increase in pipeline gas sales volume and a 5 million cubic meter decrease in pipeline gas transmission volume. Due to the much lower gross margin of pipeline gas transmission compared to sales, the overall gas sales business is expected to remain stable and increase; the company expects the number of new connection households to further decrease to 43,000, but the 15% growth target in value-added service gross profit will help mitigate the decline in connections. With further reduction in financing costs by 10-15 million RMB, the company is expected to maintain profitability in FY2026. In addition, with the dividend increase policy from 2025 to 2027, the company's investment risks are expected to be reduced. BINHAI INV expects EPS of 0.167 and 0.185 RMB for the years 2026 and 2027 respectively. If the two major shareholders continue to fulfill their commitments to expand BINHAI INV, the company's value will be reevaluated. Calculated at a conservative P/E ratio of about 8 times, the bank gives a "buy" rating to BINHAI INV with a target price of around 1.63 HKD. Even calculated at about 7 times the dividend yield, the company's stock price should reach at least 1.2 HKD.