According to the Zhitong Finance APP, Xincheng Securities released a research report stating that Binhai Investment (02886) announced its mid-term results for 2025. Due to the warm winter and the ongoing recovery of the Chinese economy, the sales gas volume and connections in the first half of the year were affected, putting pressure on revenue and gross profit. However, after a series of cost reduction and efficiency enhancement measures, the company maintained profit growth. Excluding the one-time impact of the warm winter, with a significant recovery in gross margin and rapid growth in value-added services, along with the likelihood that the connection business has bottomed out, Xincheng Securities expects Binhai Investment's EPS to grow steadily from 2025 to 2027, and with the increase in dividend policy, maintains a &#34;Buy&#34; rating with a target price of HKD 1.58.
<h2>Sales gas business affected by warm winter, but gross margin significantly recovers</h2>
Xincheng Securities pointed out that in the first half of 2025, the company's total sales gas volume decreased by 14% year-on-year to 1.14 billion cubic meters, of which pipeline sales gas fell by 12% year-on-year to 830 million cubic meters, and pipeline transmission gas dropped by 18% to 310 million cubic meters. The main reason for the decline in supply gas volume in the first quarter was the warm winter, changes in market demand caused by the warm winter, and maintenance shutdowns of some major customers during the year, resulting in a reduction of 118 million cubic meters.
However, the company's gross margin level has significantly recovered. Since last year, the company has optimized the upstream and downstream industrial chain, focusing on fully optimizing gas source costs, and continued to optimize the gas source structure this year. The company stated at the beginning of the year that Sinopec would significantly lower gas prices this year. In the first half of 2025, about 55% of the company's gas source structure came from the three major oil companies, mainly because Q1 was still the old contract year, but it has already led to an increase in comprehensive gross margin and average gross margin of urban gas by RMB 0.07 per cubic meter, reaching RMB 0.44 and RMB 0.50 respectively, with the gross profit margin of pipeline sales gas rising by 1.1 percentage points to 6.9%. The company expects that 70% of the gas volume for the whole year will come from the three major oil companies, believing that it can meet the annual target, and the gross margin will continue to recover, significantly enhancing the profitability of the sales gas business. Since the pipeline sales gas business accounts for 61% of the company's gross profit, the increase in gross margin is very important for the company's profitability.
Although the total sales gas volume in the first half of the year decreased, mainly due to the warm winter causing a 27% decline in total sales gas volume in Q1, the total sales gas volume in Q2 increased by 13% year-on-year, indicating that the company's sales gas business is still in a growth phase. If there were no warm winter factors in the first half of 2025, the total sales gas volume would be about 1.258 billion cubic meters, a year-on-year decrease of 5.4%. Based on the comprehensive gross margin of RMB 0.44, the company's gross profit would be approximately HKD 366 million, which is expected to lead to a higher net profit attributable to the parent company.
<h2>Value-added services officially included in main business, revenue and gross profit both grow by 7%</h2>
Since the launch of value-added services in 2021, the business has been in a state of rapid development. In the first half of 2025, both business revenue and gross profit increased by 7% year-on-year, recording HKD 37.67 million and HKD 25.40 million respectively, with a gross profit margin maintained at 67.4%. Therefore, it has been officially included in the main business, enhancing the company's overall gross profit margin.
Among the four categories of value-added services, three recorded growth in gross profit, including a 91% year-on-year increase in gas appliance sales, mainly due to the sales of the self-owned brand &#34;Taiyuejia&#34; products, which significantly improved the gross profit margin; insurance service gross profit increased by 14% year-on-year; and non-residential maintenance business grew by 61%. However, small installations saw a year-on-year decline in gross profit of 17% due to the impact of the real estate market
The company continues to propose new developments in value-added services. In order to address the issue of declining gross profit in small installations, it has introduced a kitchen beautification business in 2025, which, according to the company, can achieve a gross profit margin of 45%. As the Chinese real estate market has not yet truly recovered, many Chinese families are reducing their purchases of new homes and are instead inclined to renovate their existing residences. Therefore, kitchen beautification has enormous market potential, and it is expected to improve the gross profit situation of small installations in the second half of the year.
The company also stated that it will launch an e-commerce platform by the end of September, which includes three major systems: a store system, an after-sales service system to address offline management pain points; and a mobile online mall to open up online sales channels. The entire system will enhance the development of value-added services. Due to the relatively small scale of BINHAI INV, the customer touchpoints are not comprehensive enough, and expanding online sales channels will allow the company's products to reach more potential customers. It is expected that the initial launch of the e-commerce platform will increase the scale of value-added service revenue, but gross profit may be affected by initial investments; however, it is still worth looking forward to in the long term.
<h2>Connection business expected to have bottomed out impact on company profits</h2>
The mainland real estate market remains in a trough, which has affected the company's connection business, with revenue in 20251H dropping 25% year-on-year to HKD 125 million, and gross profit falling 30% year-on-year to HKD 71.9 million. The number of new connections was 28,600, down 32% year-on-year, but compared to the new connections of about 28,200 in 20242H, there was a slight rebound quarter-on-quarter. In terms of gross profit for the connection business, it was about HKD 92.45 million in 20242H, a quarter-on-quarter decrease of 22.2%, but the decline has also lessened. It is expected that the impact of connections on company profits is nearing the bottom.
<h2>Reducing financing costs for more reasonable capital utilization</h2>
The company has significantly reduced financing costs. As of June 30, 2025, the structure of the company's loan currency has seen the proportion of RMB increase to 82%, while the proportion of higher-interest USD loans has decreased to 18%; financing costs for 20251H were HKD 45.49 million, a year-on-year decrease of 39%.
In 2025, the company made two loan-related announcements, including receiving a loan of RMB 300 million from multiple banks in March and another loan of RMB 200 million from the Tianjin branch of China Agricultural Bank in July. The interest rates on these loans are significantly lower than the one-year Loan Prime Rate (LPR). In April of this year, the company proactively repaid a syndicate loan of RMB 220 million at a fixed interest rate of 6%. On one hand, this shows that the company is systematically replacing high-interest loans with low-interest loans; on the other hand, the interest expense for the RMB 220 million at 6% is about RMB 13.2 million per year, which is comparable to the total interest expense level of the newly created RMB 500 million loan, meaning the same interest expense level but with approximately double the available capital scale. This helps the company's cash flow and allows for more funds for business development.
<h2>Sinopec fulfills shareholder assistance responsibilities</h2>
BINHAI INV's subsidiary, Tianjin TEDA Binhai Clean Energy Group Co., Ltd., has received a credit line of RMB 150 million from its second shareholder, the Tianjin branch of Sinopec Financial Co., Ltd., to settle natural gas procurement payments for Tianjin Clean Energy. This model provides BINHAI INV with low-cost funding and optimizes the company's financing structure and financial costs, thereby strongly supporting the group's operational and development needs
It can be seen that Sinopec also intends to provide assistance to strengthen BINHAI INV.
Citi Securities pointed out that the company's performance in the first half of 2025 is mainly affected by the warm winter. The company has adjusted its full-year guidance, maintaining a sales gas volume growth target of 9% for the entire year, while the pipeline gas transmission volume target has been reduced by 13%. Although the gross profit margin for the pipeline gas transmission business is as high as 87%, due to its small size, it only accounts for 7.6% of the overall gross profit, so it is estimated that it will not have a significant impact on the annual profit.
If the weather this winter is normal, it will bring strong growth to the company's sales gas volume, combined with the recovery of gross margin, the entire sales gas business revenue and gross profit in 2025 may see a significant year-on-year increase. Looking ahead to the full year of 2025, as long as the 2H of 2025 connection business maintains the same level as 1H of 2025, and the gross profit from value-added services grows to the target of 20%, reaching approximately HKD 65 million, the company's profit next year is expected to see considerable growth.
Citi Securities expects that BINHAI INV's EPS for 2025 and 2026 will be HKD 0.198 and HKD 0.218, respectively. Based on the company's current price-to-earnings ratio of about 8 times, Citi Securities gives BINHAI INV a &#34;Buy&#34; rating, with a target price of approximately HKD 1.58. Based on the closing price of HKD 1.13 on September 3, the upside potential is about 39.8%.

02886

Citi Securities maintains a "Buy" rating on BINHAI INV with a target price of HKD 1.58. Despite a 14% year-on-year decline in sales volume in the first half of 2025 due to the warm winter and economic recovery, the company has maintained profit growth through cost reduction and efficiency improvement measures. Excluding the impact of the warm winter, the gross margin has significantly recovered, and value-added services are growing rapidly. It is expected that EPS will grow steadily from 2025 to 2027, and the increase in dividend policy along with the rising gross margin will enhance the company's profitability

CITIC Securities: Proper cost control ensures growth, maintains BINHAI INV "Buy" rating, target price HKD 1.58