ENN Energy Earnings: Weak Results but Management Guidance Unchanged

After factoring in weak first-half results, we cut ENN Energy’s fair value estimate to HKD 72 per share from HKD 88. Core profit of CNY 3.3 billion was down 17% year on year, mainly due to a lower LNG trading gain of CNY 183 million versus CNY 1.1 billion a year ago, partly offset by stronger domestic businesses. While operating statistics align with management guidance, these came in at the lower end of targets, with margins falling short of our expectations. Hence, we cut 2024-26 earnings forecasts by 14%-20%. We believe current share price looks attractive, with ENN trading at a 2024 price/book ratio of 1.1 times and a dividend yield of more than 5%. ENN aims to pay 44% of core profit as dividends in 2024, and we expect it will gradually increase to 50% given ENN’s healthy balance sheet and stable cash flow. We think near-term share price performance will remain volatile given China’s weak macroeconomic conditions and the sluggish real estate sector.