ENN Energy: 2022 Operating Statistics Trail Expectations; Negatives Largely Priced In

ENN Energy’s 2022 net profit of CNY 5.9 billion disappointed, largely attributable to a foreign-exchange loss of CNY 1.0 billion, higher input costs and COVID-19 disruptions. Meanwhile, core net profit rose 11% year on year to CNY 8.0 billion, aided by LNG trading gain but still below guidance of 12%-15% growth. We cut ENN’s fair value estimate to HKD 130 from HKD 135 after considering lower dollar margins and a weaker new residential connections outlook. However, we believe the shares are currently undervalued, with key negatives largely priced in. We think ENN’s earnings will be underpinned by growing contributions from integrated energy and value-added businesses.