Shenwan Hongyuan Group Co., Ltd. has released a research report maintaining a "Buy" rating on KUNLUN ENERGY (00135). The report highlights Kunlun Energy's plan to repurchase up to 1% of its shares by 2027, a move intended to enhance earnings per share and shareholder returns, which underscores the company's long-term confidence, supported by its ample cash reserves. The Fujian Fuqing LNG terminal is projected to commence operations in 2027, promising a stable stream of "toll fee" income. Furthermore, the company holds a leading position in the industrial and commercial gas sector and is well-positioned to benefit from industrial fuel substitution demand driven by the "dual carbon" policy, thereby supporting sustained growth in its core business. The key viewpoints from Shenwan Hongyuan are outlined below.
Kunlun Energy recently announced that, from the date of the repurchase announcement until the conclusion of the 2027 Annual General Meeting, it will utilize existing cash to buy back a maximum of 86.59 million shares (approximately 1% of the issued share capital as of the announcement date) on the open market, with the repurchased shares expected to be cancelled at an appropriate time. The actual repurchase price per share will not exceed 105% of the average closing price of the shares for the five trading days immediately preceding each repurchase.
The company plans to repurchase a maximum of 86.59 million shares, representing 1% of its total share capital. According to the announcement, the share repurchase will be funded using existing cash resources. Assuming a repurchase at the maximum quantity and based on the average daily closing price from January 12-16 (HKD 7.40 per share), the maximum capital outlay would be approximately HKD 673 million (calculated at the upper limit of 105% of the average closing price). The company possesses substantial cash resources, with cash on hand reaching RMB 29.479 billion as of the first half of 2025, indicating that internal funds are more than sufficient to cover the repurchase expenditure, and the financial impact is expected to be minimal. The initiation of this repurchase plan is anticipated to boost earnings per share and return on capital, demonstrating strong confidence in long-term development.
The 3 million tons per year Fujian Fuqing LNG terminal, currently under construction, is expected to become operational in 2027. The terminal will operate on a highly stable "toll fee" model, primarily providing services for unloading LNG carriers, storing LNG, and regasification or reloading, thereby avoiding exposure to LNG price volatility and ensuring high earnings stability post-commissioning. Referencing the service price of RMB 0.287 per cubic meter at the Zhangzhou LNG terminal and considering the operational capabilities of Kunlun's existing terminals in Tangshan and Rudong, and assuming the terminal's utilization rate rises to 85%, the project could generate approximately RMB 1 billion in additional revenue in the long term, driving continued performance growth.
The potential for industrial gas demand under the "dual carbon" and energy consumption control policies should not be overlooked. The company's operations are primarily focused on central and western regions, with its gas sales structure heavily weighted towards price-sensitive industrial and commercial customers. In the first half of 2025, industrial and commercial gas accounted for 85% of its retail gas volume, the highest proportion in the industry. Against the backdrop of these policies, the nationwide substitution of coal/oil with natural gas is expected to advance steadily. Coupled with a global cycle of declining natural gas costs, demand from price-sensitive industrial users is likely to see sustained growth, supporting a strong growth outlook for the company's core gas sales business.
Potential risks include rising natural gas procurement costs, weaker-than-expected downstream natural gas demand, and delays in the share repurchase schedule.