Key takeaway

The company's earnings in 2Q26 significantly exceeded expectations. Despite temporary sales pressure on the LNG and LPG businesses due to geopolitical volatility, the company demonstrated strong operating resilience and profitability. This was driven by a substantial increase in LPG profitability, flexible allocation in LNG trading, and rapid growth in the specialty gas business. Over the medium to long term, the company is accelerating several high-quality, high-return projects in line with the performance targets under its equity incentive plan. These include the Xinjiang coal-to-gas project, specialty gas facilities for commercial spaceflight, and the Jiangxi Jiufeng Wentong project. These projects are expected to continue expanding the company's growth potential.

Event

The company released its 1H26 report: Revenue was RMB9.635bn, down 7.60% YoY, while net profit attributable to shareholders of the parent company was RMB950mn, up 10.40% YoY. In 2Q26 alone, revenue was RMB5.137bn, up 3.91% YoY and 14.22% QoQ, while net profit attributable to shareholders of the parent company was RMB516mn, up 45.44% YoY and 18.76% QoQ.

Quick Take

LPG business: In 1H26, the company's LPG business demonstrated significant earnings upside amid tight international LPG supply caused by disruptions in the Middle East. In 1H26, the company's LPG business generated revenue of RMB4.356bn, up 1.75% YoY, and gross profit of RMB675mn, up 130.38% YoY. The company's LPG resources mainly serve domestic customers, with residential gas accounting for 70%. Regarding project construction, the company actively advanced the LPG storage base supporting the Huizhou liquefied hydrocarbon terminal project, which can accommodate 50,000- dwt vessels. Construction was successfully completed in June.

LNG business: The LNG business also fully demonstrated the company's ability to flexibly allocate resources amid the situation in the Middle East. In 1H26, the company's LNG business generated revenue of RMB4.437bn, down 11.53% YoY, and gross profit of RMB587mn, down 13.68% YoY. We believe that although lower sales caused by the situation in the Middle East weighed on revenue, the notable increase in gross profit per metric ton of LNG provided an effective offset. For spot resources, the company made no spot purchases due to high price volat ility. For onshore gas resources, the company maintained strong relationships with suppliers such as PetroChina and Sinopec during the reporting period. Resource supply to its LNG liquefaction plants remained stable, and LNG output reached approximately 350,000 metric tons, equivalent to 106.66% of the planned volume. Meanwhile, the company is actively advancing the Shanxi Yi’an project, with annual LNG capacity of 91,100 metric tons and annual liquid ammonia capacity of 119,300 metric tons, and the Guxian project, with annual LNG capacity of 160,000 metric tons and annual synthetic ammonia capacity of 80,000 metric tons.

High-quality, high-return growth projects continue to advance. High-quality projects, including the Xinjiang coal-to-gas project, commercial aerospace projects, and the Jiangxi Wentong project, continue to advance, supporting a promising growth outlook for the company. 1) The company is investing in and constructing Phase II of the Xinjiang Qinghua project and holds a 50% equity interest, corresponding to annual natural gas capacity of 2bn cubic meters. Once completed and commissioned, the project will address the company’s shortage of equity-based gas resources; 2) the company has successively secured several major partnerships, further strengthening its multi-customer, multi-base service capabilities in specialty gases for commercial aerospace: It signed a two-year helium procurement contract with LandSpace Technology Corporation Ltd., covering the period from July 15, 2026 to July 15, 2028, with services to be provided at the Jiuquan Satellite Launch Center in Gansu Province.

Investment recommendation: Based on the company’s 1H26 results and its equity incentive targets, we forecast net profit attributable to shareholders of the parent company of RMB1.775bn/RMB1.960bn/RMB3.739bn for 2026/2027/2028. Given the attractive returns on the company’s high-quality assets and the growth contributions from several high-quality new projects, we assign a “Buy” rating.

Risks:

1. Risks from macroeconomic fluctuations and geopolitical conflicts

The clean energy sector in which the company operates is closely tied to national economic development. Macroeconomic fluctuations, changes in macro policies, or shifts in demand in related industries could adversely affect the company’s operations and market expansion. In addition, geopolitical developments, military conflicts, extreme weather events, and other factors could cause fluctuations in international exchange rates, supply and demand across upstream and downstream industries, and significant price volatility. These factors could adversely affect the company’s operations.

2. Risk of intensifying market competition

The company’s LNG and LPG products are commoditized and face full market competition. Although transportation radius constraints limit the number of competitors in any given operating region, the company could be placed at a competitive disadvantage if new competitors enter its operating regions, existing competitors increase product supply, or the company fails to maintain its advantages in supply and pricing and its high standards of operational management and service.

3. Acquisition and integration risks

Since its listing, the company has actively accelerated its business expansion through acquisitions and integration. As of the end of the reporting period, Sentai Energy, Huakai Oil and Gas, and several other companies had become wholly owned or controlled subsidiaries of the company. The company will develop tailored management models and integration strategies based on each company’s characteristics to strengthen business synergies. However, uncertainty remains as to whether the expected integration outcomes can be achieved. Integration progress and synergies may fall short of expectations.