股

票

研 [Table_Title] Kevin Guo 郭勇 Company Report: Binhai Investment (02886 HK)

究 (86755) 2397 6671 EquityResearch 公司报告： 滨海投资 (02886 HK) [email protected]

9 April 2020 [Table_Summary] Gas Dollar Margin Is Expected to Improve, Maintain "Buy"

销气价差预计将改善，维持“买入”评级 公

[Table_Rank] 司  The 2019 annual results of the Company was lower than our Rating: Buy Maintained 报 expectation, mainly due to lower gas dollar margin. Total revenue of the Company increased 7.5% yoy to HK$3.56 billion, but net profit attributable to 告 评级： 买入 (维持)

shareholders decreased 22.0% yoy to HK$81.1 million. CompanyReport  The Company expects total sale of gas to increase by about 17.0% to [Table_Price]目标价 3 6-18m TP : HK$1.93 1.17 billion m in 2020 and gas transporting volume to increase by Revised from 原目标价: HK$1.93 3 about 8.9% to 995.6 million m . Although favorable policy environment and strong natural gas consumption demand remain unchanged, the outbreak of Share price 股价: HK$1.200

the coronavirus will impact gas demand. 告

证  Gas dollar margin of the Company is expected to improve in 2020. We Stock performance 报

expect natural gas supply status to be stable in 2020 and procurement costs 券 股价表现

究 of natural gas of the Company are expected to be stable. We also expect that 15.0

[Table_QuotePic% of return]

研 the Company to be allowed to raise gas selling price to its customers. 10.0

研

究  The Company expects new customer connections to increase by about 5.0 0.0 券 10% in 2020. 报 (5.0)

告  证 Maintain the TP of the Company at HK$1.93, and maintain "Buy". (10.0) EquityResearch Report  由于更低的销气价差，公司 2019 年年度业绩差于我们的预期。公司收入同比增长 7.5% (15.0)

至 35.6 亿港元，但股东净利同比下跌 22.0%至 0.811 亿港元。 (20.0)

(25.0)  公司预计 2020 年的天然气销量将增长 17.0%左右至 11.7 亿立方米且输气业量将增长 (30.0)

[Tab 8.9%左右至 9.956 亿立方米。虽然有利的政策环境和强劲的天然气消费需求保持不变，但 Apr-19 Jul-19 Oct-19 Jan-20 Mar-20 le_I 是新型冠状病毒的爆发将会影响天然气的需求。 HSI Index Binhai Investment 清 nfo1  公司销气价差在 2020 年预计将改善。我们预计天然气的供应状况在 2020 年将稳定，公 洁 司天然气的采购成本预计将稳定。我们预计公司将被允许上调对客户的售气价格。 ] Change[Table_PriceChange] in Share Price 1 M 3 M 1 Y 能

 公司预计 2020 年新接驳客户将增长 10%左右。 股价变动 1 个月 3 个月 1 年 Natural Gas Natural 源 - Abs. % 0.0 (18.4) (11.1) 行  维持公司目标价在 1.93 港元，维持“买入”评级。 绝对变动 % Rel. % to HS Index 4.3 (2.3) 9.4 业 Sector 相对恒指变动 %

- Avg. Share price(HK$) 1.2 1.3 1.3 天 平均股价（港元） 然 Source: Bloomberg, Guotai Junan International. 气

Clean Energy

[Tab

le_I Y[Table_ear End Turnover Net Profit EPS EPS PER BPS PBR DPS Yield ROE

年结Profit] 收入 股东净利 每股净利 每股净利变动 市盈率 每股净资产 市净率 每股股息 股息率 净资产收益率 nfo2 12/31 (HK$ m) (HK$ m) (HK$) (△ %) (x) (HK$) (x) (HK$) (%) (%) ] 2018A 3,308 104 0.089 (52.9) 13.5 1.162 1.0 0.045 3.8 7.5 滨 2019A 3,558 81 0.069 (22.5) 17.4 1.158 1.0 0.035 2.9 6.1 2020F 4,082 196 0.167 142.0 7.2 1.281 0.9 0.050 4.2 14.2 海 2021F 4,651 256 0.218 30.5 5.5 1.440 0.8 0.065 5.4 16.6 投 2022F 5,305 291 0.248 13.8 4.8 1.622 0.7 0.074 6.2 16.8 资 [Table_BaseData]Shares in issue (m) 总股数 (m) 1,174.3 Major shareholder 大股东 TEDA HK 63.2% Market cap. (HK$ m) 市值 (HK$ m) 1,409.2 Free float (%) 自由流通比率 (%) 36.8% 3 month average vol. 3 个月平均成交股数 (‘000) 191.6 FY20 Net gearing (%) FY20 净负债/股东资金 (%) 188.2

52 Weeks high/low (HK$) 52 周高/低 (HK$) 1.530 / 1.070 FY20 Est. NAV (HK$) FY20 每股估值（港元） 2.3 Binhai Investment HK) (02886 Source: the Company, Guotai Junan International.

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[Table_PageHeader]Binhai Investment (02886 HK)

The 2019 annual results of the Binhai Investment (the "Company") was lower than our expectation, mainly due to

lower gas dollar margin. Total revenue of the Company increased 7.5% yoy to HK$3.56] 1 billionr a , M butt neth g profiti R attributable_ e l b toa T [

shareholders decreased 22.0% yoy to HK$81.1 million. Total revenue contributed by gas distribution business increased by

12.0% yoy to HK$2.89 billion, revenue contributed by connection service decreased by 12.0% to HK$0.56 billion, and revenue

contributed by gas transporting business increased by 20.8% yoy to HK$81.4 million. Total sale of gas increased by 15.3% yoy to 1.0 billion m3 and gas transporting volume surged 38% yoy to 0.92 billion m3. Natural gas consumed by residential customers

increased by 21.1% yoy to 247.5 million m3 and gas consumed by industrial/ commercial customers increased by 13.5% yoy to 9 April2020 752.1 million m3. The Company added 199,416 residential customers in 2019, an increase of 35.0% yoy. The general gross margin of the Company was 15.0%, which decreased by 4.0 ppts comparing to the same period due to increased purchase cost of the piped natural gas

The Company expects total sale of gas to increase by about 17.0% to 1.17 billion m3 in 2020 and gas transporting 3 volume to increase by about 8.9% to 995.6 million m . Although favorable policy environment and strong natural gas consumption demand remain unchanged, the outbreak of COVID-19 will impact gas demand. In the short term, gas consumption of commercial customers dropped greatly due to the nationwide lockdown. In the long term, gas consumption of industrial customers is expected to decline as the outbreak of the COVID-19 in other countries will impact exports of its industrial customers. However, we expect gas demand from commercial customers to resume gradually from March as the

COVID-19 outbreak is successfully contained by the Chinese Government. We expect gas] demand2 r a M oft theh g Companyi R _ e tol b bea T [

slightly impacted by the outbreak of COVID-19 pandemic. The Company’s sale of natural gas will continue to benefit from a favorable policy environment and growing downstream demand, which remains unchanged. The need to adjust energy consumption structure will drive natural gas consumption in the long term. Natural gas currently only accounts for around 7% of total energy consumption in China, which is much lower than the 2020 10% target and the 15%-20% target in the long term. According to the Natural Development and Reform Commission (NDRC), China’s natural gas consumption increased by 9.4% yoy to 306.7 billion m3 in 2019. Although the growth speed was a bit lower compared to the same period last year, it was still

maintained at a relatively high speed. We also expect natural gas consumption to maintain fast growth speed in the next 3-5 years. Both the central government and local governments plan to develop natural gas into one of the major types of energy in

China’s modern clean energy system, and maintained its target unchanged till now. On the other hand, environmental (02886 HK)

protection pressure will also drive natural gas consumption. All the favorable policies for natural gas consumption and the setting target of governments remain unchanged; we expect "coal-to-gas conversion" and similar policies to continue to strongly

drive gas consumption in China. Gas transporting volume is expected to maintain fast growth rate as Nanjiang Power Station 滨海投资 and Huaneng Power Station enter into a normal operating period in 2019, while Junliangcheng Power Station is expected to start trial operation in the year end of 2019.

Figure-1: Total Sales of gas of Binhai Investment Figure-2: Gas Dollar Margin of Binhai Investment Binhai Investment million m3 HKD gas dollar margin 1,600 sale of piped gas yoy 140% 0.500 0.450 1,400 120% 0.400 1,200 100% 0.350 1,000 0.300 80% 800 0.250 60% 0.200 600 0.150 40% 400 0.100 200 20% 0.050

0 0% 0.000 2010 2012 2014 2016 2018 2020F 2022F 2012 2013 2014 2015 2016 2017 2018 2019 2020F2021F2022F

Source: the Company, Guotai Junan International. Source: the Company, Guotai Junan International.

Gas dollar margin of the Company is expected to improve in 2020. Gas dollar margin of the Company was badly eroded

in 2019 due to higher gas procurement costs. The merge of citizen and non-citizen city-gate price led to higher gas Report

procurement prices and the Company was not able to pass the price hike to downstream customers. Besides, upstream

suppliers raised gas price during heating seasons and during summer as well, which also led to higher gas procurement costs.

Company As a result, gross profit generated by the sale of gas decreased by more than 23.7% yoy in 2019. We expect gas dollar margin of the Company to improve in 2020. We expect natural gas supply status to be stable in 2020 and procurement costs of See the last page for disclaimer Page 2 of 6 [Table_PageHeader]Binhai Investment (02886 HK)

natural gas of the Company are expected to be stable. We also expect the Company to be allowed to raise gas selling price to

its customers in Tianjin and pass higher gas procurement costs to its customers. Hence,] we1 r expecta M gast h dollarg i marginR _ e ofl theb a T [

Company to improve greatly in 2020. We expect gas dollar margin of gas distribution companies to be more stable under the

new price mechanism.

The Company expects new customer connections to increase by 10% in 2020. The Company connected about 199,416 new residential customers in 2019, an increase of 34.5% compared to that in 2018. The connection service of the Company

was stable in the past several years and the Company usually connects about 0.18-0.20 million new customers each year in 9 April2020 its current operating area. The Company expects new customer connections to increase by about 10% in 2020.

Maintain the TP of the Company at HK$1.93, and maintain "Buy". Binhai Investment is a fast-developing gas distributor in China. The Company benefited greatly from fast-growing gas demand within the Binhai New Area. We expect the sale of piped gas of the Company to maintain fast growth over the next 3 years; we also expect revenue contributed by connection services to increase steadily. Although the outbreak of COVID-19 will impact gas demand, favorable policy environment and strong natural gas consumption demand remains unchanged. The Company expects its gas sale to maintain fast growth in 2020. As more and more high-end manufacturing projects settle in the Binhai New Area, future natural gas consumption potential is very large. In addition, the "coal-to-gas" and "oil-to-gas" act which has been driven by the government will also bring greater gas consumption need in the future. Besides, gas transporting business is expected to maintain fast growth over

] 2 r a M t h g i R _ e l b a T [

the next few years as more gas power plants are put into operation. The gas dollar margin of the Company is expected to improve greatly in 2020 and to become more stable in the future. We expect net profit of the Company to record fast growth in 2020. As a result, we maintain TP of the Company at HK$1.93, which represents 11.6x FY20 PE and maintain "Buy" rating.

(02886 HK)

滨海投资 Binhai Investment

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PB9UxXbWaXoXeWfV8OaOaQpNoOmOmMeRmMqMiNoOwP9PoPrONZsPyQMYsQyR [Table_PageHeader]Binhai Investment (02886 HK)

Table-1: Peers Comparison PE (fiscal year) PB (fiscal year) ROE(%)

] 1 r a M t h g i R _ e l b a T [

Company Stock Code Currency Last price 18A 19F 20F 21F 18A 19F 20F 21F 19F Large Cap. Gas Distributors

Hong Kong & China Gas 3 HK HK$ 13.78 22.8 33.4 30.6 28.6 3.4 3.6 3.5 3.4 11.0

Kunlun Energy Co Ltd 135 HK HK$ 4.66 6.8 6.2 6.0 5.3 0.8 0.7 0.7 0.6 12.0

Beijing Enterprises Hldgs 392 HK HK$ 26.80 4.5 4.2 4.3 3.9 0.5 0.4 0.4 0.4 11.1

China Gas Holdings Ltd 384 HK HK$ 24.75 20.1 15.2 13.4 11.1 4.3 3.7 3.0 2.5 25.8

9 April2020 Enn Energy Holdings Ltd 2688 HK HK$ 80.95 26.7 14.1 13.7 12.0 3.7 3.1 2.7 2.3 24.0

China Resources Gas Group Lt 1193 HK HK$ 40.70 20.0 17.5 16.6 15.1 3.8 3.4 2.9 2.6 19.8

Towngas China Co Ltd 1083 HK HK$ 3.78 8.6 8.2 7.3 6.8 0.7 0.6 0.6 0.5 7.5

Simple Average 15.6 14.1 13.1 11.9 2.4 2.2 2.0 1.8 15.9 Weighted Average 18.6 13.4 12.5 10.9 3.3 2.8 2.4 2.1 20.9

Small Cap. Gas Distributors

China Oil And Gas Group Ltd 603 HK HK$ 0.25 4.3 3.7 n.a. n.a. 0.4 0.4 n.a. n.a. 9.9

China Tian Lun Gas Holdings 1600 HK HK$ 5.36 7.8 5.9 4.9 4.2 1.4 1.2 1.0 0.9 22.1

Zhongyu Gas Holdings Ltd 3633 HK HK$ 5.77 23.5 34.1 n.a. n.a. 3.7 3.2 n.a. n.a. 9.9

Binhai Investment Company Lt 2886 HK HK$ 1.20 13.5 17.4 n.a. n.a. 1.5 1.5 n.a. n.a. 8.6

Tianjin Jinran Public Util-H 1265 HK HK$ 0.55 23.2 242.4 n.a. n.a. 0.5 0.5 n.a. n.a. 0.2

Chinese People Holdings Co 681 HK HK$ 0.04 1.2 1.8 n.a. n.a. 0.1] 2 0.1r a M n.a.t h g n.a.i R _ e l 8.3b a T [

Simple Average 12.3 50.9 4.9 4.2 1.3 1.2 1.0 0.9 9.8 Weighted Average 15.4 32.7 4.9 4.2 1.9 1.7 1.0 0.9 9.2

A-share Gas Distributors

Guanghui Energy Co Ltd-A 600256 CH CNY 2.66 9.5 9.7 7.4 6.9 1.2 1.1 1.0 0.9 11.4

Shenergy Company Limited-A 600642 CH CNY 5.36 13.4 11.3 9.2 8.5 0.9 0.9 0.9 0.8 6.2

Shenzhen Gas Corp Ltd-A 601139 CH CNY 7.22 20.1 18.8 15.4 13.7 2.2 2.1 1.9 1.7 11.3

Shaan Xi Provincial Natura-A 002267 CH CNY 6.00 16.5 16.4 13.0 12.8 1.2 n.a. n.a. n.a. n.a.

Changchun Gas Co Ltd -A 600333 CH CNY 3.99 n.a. n.a. n.a. n.a. 1.2 n.a. n.a. n.a. n.a.

Sichuan Datong Gas Develop-A 000593 CH CNY 5.07 n.a. n.a. n.a. n.a. 2.0 n.a. n.a. n.a. n.a.

Simple Average 14.9 14.0 11.3 10.4 1.4 1.4 1.3 1.2 9.6 (02886 HK)

Weighted Average 17.1 16.0 12.9 11.9 1.5 1.6 1.5 1.4 9.2 Source: Bloomberg, Guotai Junan International.

滨海投资 Binhai Investment

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See the last page for disclaimer Page 4 of 6 [Table_PageHeader]Binhai Investment (02886 HK)

Financial Statements and Ratios

[Table_IncomeStatement] [Table_BalanceSheet] ] 1 r a M t h g i R _ e l b a T [

Income Statement Balance Sheet

Year end 31 Dec (HK$ m) 2018A 2019A 2020F 2021F 2022F Year end 31 Dec (HK$ m) 2018A 2019A 2020F 2021F 2022F

Total Revenue 3,308 3,558 4,082 4,651 5,305 Land use rights 171 229 225 222 221

COGS (2,696) (3,033) (3,411) (3,879) (4,428) PPE 3,868 4,325 4,385 4,743 5,109

Gross profit 612 525 671 772 876 Long-term investments 70 71 81 94 108

Administration Expenses (211) (262) (273) (284) (324) Others 83 23 26 30 34

Other income and losses (95) 19 20 21 22 Total Non-current Assets 4,193 4,685 4,717 5,088 5,471 9 April2020

Operating Profit 305 281 417 509 575

Finance costs-net (130) (105) (95) (88) (95) Inventories 91 117 86 98 111

Others 6 6 4 5 6 Trade and other receivables 694 344 816 930 1,061 Profit Before Tax 182 183 326 426 486 Cash & Cash Equivalents 988 700 653 744 849 Income Tax (75) (63) (82) (106) (121) Others 8 0 0 0 0

profit After Tax 107 120 245 319 364 Total Current Assets 1,825 1,418 1,555 1,772 2,021

Non-controlling Interest (3) (39) (49) (64) (73) Total Assets 6,018 6,103 6,272 6,860 7,492

Shareholders' Profit / Loss 104 81 196 256 291

Basic EPS 0.089 0.069 0.167 0.218 0.248 Trade and other payables 1,278 1,332 1,224 1,395 1,591

Current income tax liabilities 62 51 106 121 138

Borrowings 273 2,512 1,342 1,736 1,784 Total Current Liabilities 2,156 4,638 2,672 3,252 3,513

] 2 r a M t h g i R _ e l b a T [ [Table_CashFlowStatement] Cash Flow Statement

Year end 31 Dec (HK$ m) 2018A 2019A 2020F 2021F 2022F Borrowings 2,444 28 2,041 1,860 2,016

EBIT 305 281 417 509 575 Derivative financial instruments 53 54 55 57 59

Income tax (75) (63) (82) (106) (121) Total Non-current Liabilities 2,497 105 2,096 1,917 2,075

Adjust for depre.&amort. 112 120 137 148 160

Change in WC 118 (378) 549 (45) (52) Total Liabilities 4,653 4,743 4,768 5,169 5,588

Others (258) 455 (1,415) (109) (126) Total Shareholders' Equity 1,335 1,313 1,450 1,629 1,833

Cash from Operating Activities 202 415 (393) 397 435 Minority Interest 30 47 54 62 71

Total Equity 1,365 1,360 1,504 1,691 1,904

Capital expenditure (361) (502) (482) (503) (524)

Others 0 0 3 3 4

[Table_FinancialRatio] (02886 HK) Cash from Investing Activities (361) (502) (479) (500) (520) Financial Ratios

Year end 31 Dec (HKD m) 2018A 2019A 2020F 2021F 2022F

Proceeds from issuance of bonds 231 232 233 234 235 Gross margin 18.5% 14.7% 16.4% 16.6% 16.5% 滨海投资 Net cash flow from borrowings (2,339) (409) 609 (20) (31) Net margin 3.1% 2.3% 4.8% 5.5% 5.5%

Interest paid (87) (114) (115) (128) (135) ROE 7.5% 6.1% 14.2% 16.6% 16.8%

Others 67 73 79 85 92 ROA 1.7% 1.3% 3.1% 3.7% 3.9%

Cash from Financing Activities (2,128) (218) 805 170 161 Free CF (159.1) (86.6) (875.1) (106.5) (88.9)

Net Changes in Cash (2,287) (304) (67) 67 76 Net gearing 129.5% 140.1% 188.2% 175.1% 161.0%

Cash at Beg of Year 3,261 988 700 653 744

Binhai Investment Foreign exchange rate changes 14 17 20 24 29 Cash at End of Year 988 700 653 744 849

Source: the Company, Guotai Junan International.

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See the last page for disclaimer Page 5 of 6 [Table_PageHeader]Binhai Investment (02886 HK)

Company[Table_CompanyRatingDefinition] Rating Definition

The Benchmark: Hong Kong Hang Seng Index ] 1 r a M t h g i R _ e l b a T [

Time Horizon: 6 to 18 months

Rating Definition

Buy 买入 Relative Performance>15%; or the fundamental outlook of the company or sector is favorable. Accumulate 收集 Relative Performance is 5% to 15%;

or the fundamental outlook of the company or sector is favorable. 9 April2020 Neutral 中性 Relative Performance is -5% to 5%; or the fundamental outlook of the company or sector is neutral. Reduce 减持 Relative Performance is -5% to -15%; or the fundamental outlook of the company or sector is unfavorable.

Sell 卖出 Relative Performance <-15%; or the fundamental outlook of the company or sector is unfavorable.

Sector[Table_ RatingIndustry DefinitionRatingDefinition] The Benchmark: Hong Kong Hang Seng Index Time Horizon: 6 to 18 months Rating Definition Outperform 跑赢大市 Relative Performance>5%;

] 2 r a M t h g i R _ e l b a T [ or the fundamental outlook of the sector is favorable. Neutral 中性 Relative Performance is -5% to 5%; or the fundamental outlook of the sector is neutral. Underperform 跑输大市 Relative Performance<-5%; Or the fundamental outlook of the sector is unfavorable.

[DISCLOSURETable_DISCLOSUREOFINTERESTS OF INTERESTS ]

(1) The Analysts and their associates do not serve as an officer of the issuer mentioned in this Research Report. (2) The Analysts and their associates do not have any financial interests in relation to the issuer mentioned in this Research Report. (3) Except for KAISA GROUP (01638 HK),GUOTAI JUNAN I (01788 HK),JINSHANG BANK (02558 HK),ZHONGLIANG HLDG (02772 HK),BINHAI INVESTMENT (02886 HK),HAITIAN ANTENNA (08227 HK),Guotai Junan and its group companies do not hold equal to or

more than 1% of the market capitalization of the issuer mentioned in this Research Report. (02886 HK)

(4) Guotai Junan and its group companies have not had investment banking relationships with the issuer mentioned in this Research Report within the preceding 12 months. (5) Guotai Junan and its group companies are not making a market in the securities in respect of the issuer mentioned in this Research

Report. 滨海投资 (6) Guotai Junan and its group companies have not employed an individual serving as an officer of the issuer mentioned in this Research Report. There is no officer of the issuer mentioned in this Research Report associated with Guotai Junan and its group companies.

DISCLAIMER Binhai Investment

This Research Report does not constitute an invitation or offer to acquire, purchase or subscribe for securities by Guotai Junan Securities (Hong Kong) Limited ("Guotai Junan"). Guotai Junan and its group companies may do business that relates to companies covered in research reports, including investment banking, investment services, etc. (for example, the placing agent, lead manager, sponsor, underwriter or invest proprietarily).

Any opinions expressed in this report may differ or be contrary to opinions or investment strategies expressed orally or in written form by sales persons, dealers and other professional executives of Guotai Junan group of companies. Any opinions expressed in this report may differ or be contrary to opinions or investment decisions made by the asset management and investment banking groups of Guotai Junan.

Though best effort has been made to ensure the accuracy of the information and data contained in this Research Report, Guotai Junan does not guarantee the accuracy and completeness of the information and data herein. This Research Report may contain some forward-looking estimates and forecasts derived from the assumptions of the future political and economic conditions with inherently unpredictable and mutable situation, so uncertainty may contain. Investors should understand and comprehend the investment objectives and its related risks, and where necessary consult their own financial advisers prior to any investment decision.

This Research Report is not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation or which would subject

Guotai Junan and its group companies to any registration or licensing requirement within such jurisdiction.

© 2020 Guotai Junan Securities (Hong Kong) Limited. All Rights Reserved. Report

27/F., Low Block, Grand Millennium Plaza, 181 Queen’s Road Central, Hong Kong. Tel.: (852) 2509-9118 Fax: (852) 2509-7793 Website: www.gtja.com.hk

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