CITIC Securities: Binhai Investment Implements Multiple Measures to Address Macroeconomic Challenges, Achieving Restorative Profit Growth

Binhai Investment announced its fiscal year 2025 full-year results. Driven by favorable factors such as a 4.5% year-on-year increase in pipeline gas sales volume, an increase in urban gas gross margin to RMB 0.51, a 13% year-on-year rise in value-added service gross profit, and a reduction in comprehensive financing costs of approximately RMB 53 million, the company achieved restorative profit growth. For FY 2025, the company's revenue was RMB 5.606 billion, down 3% year-on-year; net profit attributable to shareholders increased 12% year-on-year to RMB 206 million; earnings per share were RMB 0.15. Amidst weak overall natural gas market demand and ongoing impact on connection business from China’s real estate market, the company actively improved profitability through cost control. Additionally, with the company fulfilling its commitment to increase dividends by 10% annually from 2025 to 2027, we maintain our 'Buy' rating with a target price of RMB 1.63.

Pipeline gas sales increase against market trends, urban gas gross margin continues to recover

Binhai Investment's FY 2025 pipeline gas business revenue reached RMB 5.254 billion, down 2% year-on-year, with gross profit at RMB 306 million, a slight decrease of 1% year-on-year. In 2025, China’s apparent natural gas consumption was 426.55 billion cubic meters, increasing only 0.1% year-on-year. However, Binhai Investment’s pipeline gas sales volume rose 4.5% year-on-year to reach 1.79 billion cubic meters, significantly outperforming the broader market and achieving 96% of its annual target. Particularly, after experiencing a 26% year-on-year drop in pipeline gas sales volume during Q1 2025 due to a warm winter, sales volume surged 23% year-on-year in Q2-Q4 2025. This was mainly due to effective increases in both new and existing client gas volumes. New clients brought into operation included Phase I of Yunhai, Northern Glass, and Zhaoyuan Thermal Power Plant, which became operational within the year. Existing client increments came primarily from automotive manufacturing and dual-supply users. Additionally, gas source trading contributed to an overall volume increase.

The pipeline gas transmission segment faced significant challenges. For FY 2025, revenue fell 17% year-on-year to RMB 52 million, with gross profit dropping 18% to RMB 44 million. Pipeline gas volume reached 650 million cubic meters, down 19% year-on-year, mainly due to power plant clients being affected by grid regulation and green energy quotas, resulting in reduced generation hours and lower electricity output. Additionally, an unexpected equipment failure at the Huaneng Power Plant in September halted operations. Although another power plant client, Nangjiang Power Plant, took over some generation capacity, this still impacted Binhai Investment’s pipeline gas transmission volume by approximately 40 million cubic meters. Due to the low gross margin of this segment, the impact on the company’s overall profitability was minimal.

The company has made continuous efforts to restore gross margins, mainly by optimizing the gas source structure. Beyond annual contract volumes from the three major oil companies, Binhai Investment purchased spot natural gas domestically when prices were low during certain months, saving approximately RMB 50 million in procurement costs for the year. Furthermore, in 2025, four new subsidiaries—Changle, Zibo, Zhaoyuan, and Feng County—adjusted residential gas prices, covering about 83% of total residential gas volume, thereby restoring residential gross margins. With declining procurement costs and dual-track pricing adjustments, the urban gas gross margin recovered noticeably to RMB 0.51 (including tax).

Double-digit growth in revenue and gross profit from value-added services, major transformation anticipated again in 2026

Binhai Investment's value-added services for FY 2025 saw revenue and gross profit increase by 14% and 13% year-on-year to RMB 76.15 million and RMB 50.46 million respectively, achieving approximately 94% of the annual gross profit target. The shortfall was primarily due to newly incorporated business activities requiring restatement under consolidated reporting, resulting in a comprehensive gross margin of 66%. Since commencing operations in 2021, gross profit has grown at a compound annual rate of 34%.

Following the establishment of the proprietary brand 'Taiyuejia' in mid-2024, 2025 marked its first full year of selling 'Taiyuejia' gas appliances, with gross margin further increasing by 3.5 percentage points to 52.6%. However, affected by the real estate environment, demand for small installation services declined due to a year-on-year decrease in new gas connection households, leading to reduced demand for supporting installation services. In the second half of the year, the company fully launched its kitchen beautification business, which achieved a gross margin of 67%, effectively offsetting the decline in installation service revenues.

By the end of 2025, the company officially launched the e-commerce platform 'Taiyue Home Living', which not only sells proprietary gas appliances and security products but also collaborates with various suppliers to sell other product categories. This allows the company to break geographical limitations and expand its proprietary products nationwide across China.

In 2026, Binhai Investment's value-added services will undergo significant transformation, including expanding the current four business categories into five: 1) Smart home, including sales of gas appliances and security products; 2) At-home services, encompassing kitchen beautification and new sub-businesses such as water purification and heating services; 3) Extended maintenance, covering non-residential maintenance and new sub-businesses like non-residential security product sales; 4) Insurance services; and 5) E-commerce services. As the business becomes more diversified and tailored to user needs, value-added services are expected to maintain rapid growth and further enhance their contribution to overall profits.

Connection services remain uncertain

FY 2025 Binhai Investment’s connection business revenue was RMB 224 million, down 26% year-on-year, with gross profit falling 34% year-on-year to RMB 119 million. The number of new households added during the year was 45,700, significantly lower than the over 70,000 new households added in 2024, mainly due to the ongoing lack of recovery in China’s real estate market. The business accounted for only 4% of total revenue and 23% of gross profit, with expectations that its impact on overall profitability will gradually diminish in the future.

Remarkable success in reducing financing costs

FY 2025 Binhai Investment’s financing costs decreased by an impressive 41% year-on-year, saving RMB 53 million. This was primarily due to the full repayment of the RMB tranche of a syndicated loan (RMB 220 million) in the first half of 2025, which had a fixed interest rate of 6%. Additionally, the company secured medium-term revolving loans totaling RMB 500 million from multiple banks, all at rates significantly below the one-year LPR, while borrowing scale fell by 7% year-on-year.

In March 2026, the company secured a new syndicated loan with significantly lower interest rates for both USD and RMB tranches compared to the previous syndicated loan. With domestic funding costs currently low, the company also entered into a strategic cooperation agreement with Agricultural Bank of China's Xiqing branch in Tianjin. Replacing high-interest loans with low-interest ones within the year is entirely feasible, with expectations that FY 2026 will reduce financing costs by no less than RMB 10 million.

Two major shareholders further support Binhai Investment's development

Following two agreements signed by Binhai Investment's two major shareholders, Tianjin Teda and Sinopec Natural Gas, in 2022 and 2023 to assist the company's development, a Framework Agreement on Deepening Strategic Cooperation to Support the Company's Development was signed in March 2026. The content focuses on: one, gas source support and terminal market scale expansion; two, usage and storage support for liquefied natural gas receiving stations; three, regional gas market integration; four, cooperation on comprehensive clean energy utilization projects; five, research collaboration on carbon asset management; six, increased investment and strategic synergy. In the same month, Hainan Binhai Taiyue Home Technology Co., Ltd., a subsidiary of Binhai Investment responsible for value-added services, signed a strategic cooperation agreement with Teda City Renewal. In various urban renewal, residential, commercial, and public construction projects developed, constructed, and operated by Teda City Renewal and its affiliates, Taiyue Home will prioritize the application of its products and services in areas such as gas appliances, smart security systems, and interior design and construction.

The above two agreements cover Binhai Investment's development needs, from gas sources and pricing, value-added services, integrated energy, to increased investment, all tailored to the company's requirements. It is expected that Binhai Investment will receive substantial resource assistance.

Investment advice

In FY 2025, affected by a warm winter and a sluggish real estate market, gas sales volume and connections were impacted to varying degrees. However, given this low base, downside potential is limited. The company expects FY 2026 gas sales to steadily increase to 2.5 billion cubic meters, with pipeline sales increasing by 110 million cubic meters and pipeline transmission decreasing by 5 million cubic meters. Given that the gross margin for pipeline transmission is much lower than for pipeline sales, the overall gas sales business is expected to grow steadily. The company anticipates a further decline in new connections to 43,000 households, but a 15% growth target for value-added service gross profit will effectively offset the decline in connection-related revenue. Coupled with a reduction in financing costs by RMB 10-15 million, the company’s outlook for FY 2026 remains positive for profit growth. Additionally, the company's dividend increase policy for 2025-2027 will help mitigate investment risks.

Valuation

We forecast the company's EPS for 2026 and 2027 to be RMB 0.167 and RMB 0.185 respectively. If the two major shareholders fulfill their commitment to grow Binhai Investment, the company could undergo a revaluation. Applying a conservative price-to-earnings ratio of approximately 8x, we assign a 'Buy' rating to Binhai Investment with a target price of around RMB 1.63. Based on the closing price of RMB 1.16 on April 8, this implies an upside potential of approximately 40.5%. Even if calculated at a dividend yield of about 7x, the stock price should reach at least RMB 1.20.

Risk Factors

Uncertain or sudden geopolitical issues leading to increased natural gas procurement costs; larger-scale downturn risks in China's real estate market; slower economic recovery momentum impacting energy demand; another warm winter affecting heating demand.

Original article link: https://pru.hk/Analysis?articleId=32426

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