ENN Energy Earnings: Disappointing Results With Mixed Operating Statistics; Shares Undervalued

We cut ENN Energy’s fair value estimate to HKD 107 from HKD 130, after considering its disappointing first-half results and the depreciation of the Chinese yuan. Core profit of CNY 3.9 billion was down 5% year on year largely due to lower-than-expected retail gas sales. We reduce our 2023-25 earnings forecasts by 11%-16% to factor in the weak results. We think the current share price looks attractive with most negatives largely priced in, although China’s real estate sector concerns would weigh on near-term share price performance. We expect ENN to deliver five-year adjusted EPS CAGR of 9.3%, supported by integrated energy and value-added businesses.