ENN Energy Earnings: Results Trail Expectations but Shares Look Attractive

Narrow-moat ENN Energy’s 2023 net profit of CNY 6.8 billion was below our expectation. That said, core net profit declined 5% year on year and was in line with management guidance. We cut ENN’s fair value estimate to HKD 88 per share from HKD 102 after factoring in slower growth for the integrated energy, or IE, and value-added, or VA, businesses. However, we believe the shares are currently undervalued. Although we don’t expect the firm to post strong earnings growth as the industry is maturing, trading at below 10 times 2024 P/E, we think ENN’s valuation is attractive with a three-year earnings CAGR of 8% and estimated 2024 dividend yield of more than 4%. The 2023 dividend payout ratio is 40% of core profit, and we expect the ratio will gradually increase to 50%. The firm also has prudent financial management with free cash flow of CNY 2.1 billion in 2023, and this should support its capital expenditure and dividend payment.