In the first half of 2025, BINHAI INV (02886) demonstrated remarkable operational resilience amid challenging macroeconomic conditions. Despite revenue declining 17% year-on-year to HK$29.31 billion due to short-term factors, attributable net profit grew against the trend by 3% to HK$173 million, with basic earnings per share also rising 1% to HK$12.54 cents. This performance highlights the company's successful offsetting of revenue pressures through cost control, gross margin recovery, and financial optimization, achieving improved profitability quality.

During the period, the company's average gross margin for town gas increased by RMB 0.07/cubic meter year-on-year to RMB 0.50/cubic meter. This improvement was primarily driven by two key factors: 1. Price adjustment mechanism advancement: Local governments actively promoted residential gas price rationalization, with cities like Liuyang, Changle, and Zibo implementing pricing policies that effectively addressed the issue of residential gas price inversion, significantly improving gross margins. 2. Gas source structure optimization: The company reduced procurement costs through diversified gas sourcing strategies, including deepened cooperation with upstream enterprises such as Sinopec. Against the backdrop of oversupply in China's natural gas market, upstream gas prices have been trending downward, further creating space for gross margin improvement.

Looking ahead, as the price adjustment mechanism expands to more regions and upstream gas prices moderately decline, the company is expected to continue benefiting from a "dual increase in volume and price" pattern, driving steady expansion of gross profit margins.

Under the significant effects of refined financial management, financing costs dropped substantially. The company successfully reduced comprehensive financing costs through diversified financing channels and structural optimization. During the period: the comprehensive financing rate fell to 4.67%, a significant decrease of 82 basis points year-on-year. Financing cost savings reached HK$29.14 million, equivalent to direct profit contribution. Additionally, subsidiary companies obtained low-interest loans from multiple banks (rates below 1-year LPR), reflecting market recognition of their financing capabilities and credit levels. This move not only reduced financial burden but also established a solid funding foundation for future strategic expansion, such as comprehensive energy project investments.

On another front, BINHAI INV's business structure continues to optimize, with value-added services becoming a new growth driver. While pipeline gas sales (94% of revenue) experienced short-term volume decline due to warm winter effects, second-quarter gas sales volume rebounded 13% year-on-year, demonstrating demand resilience. Industrial user gas consumption (642 million cubic meters) still dominates, benefiting from the company's strategy of focusing primarily on industrial customers.

Value-added services (1% of revenue), after four years of cultivation, have officially become a main business segment, with both revenue and gross profit growing 7% year-on-year. The proprietary brand "Taiyuejia" gas appliances achieved remarkable growth with sales revenue and gross profit surging 39% and 91% respectively, indicating improved brand premium and market recognition. Insurance services and non-residential maintenance revenue grew 20% and 31% respectively, reflecting the company's successful transformation from a traditional gas merchant to a comprehensive service provider. Value-added services maintain high gross margins, and as business scale expands, they are expected to become an important supplement to profit contribution.

Under central macroeconomic policies, the group benefits from policy support and market opportunities. 2025, as the concluding year of the "14th Five-Year Plan" and the "Seven-Year Action Plan for Oil and Gas Reserve Increase and Production Enhancement," will see continued upstream supply growth, providing stable gas sources for midstream enterprises. Meanwhile, domestic economic recovery drives improved terminal demand, with the long-term growth logic of the city gas industry remaining unchanged.

The company's strategy is very clear: deepening cooperation with the three major oil companies and other upstream enterprises to strengthen gas source allocation capabilities and cost advantages. Simultaneously, accelerating the implementation of comprehensive energy projects (such as distributed energy and combined cooling, heating, and power) to drive transformation toward becoming a "comprehensive energy service provider." Additionally, continuously expanding value-added service boundaries to enhance user stickiness and per-customer value.

Through gross margin recovery, cost control, and business structure optimization, BINHAI INV has built capabilities to navigate through cycles. In the second half of the year, as price adjustment mechanisms deepen, gas source costs decline, and demand recovers, the company is expected to achieve double-digit growth in gas sales volume again. Gross margins are anticipated to further recover to above RMB 0.55/cubic meter. Value-added service contributions will also continue to increase.

Considering the above factors, BINHAI INV's 2025 interim results demonstrate its adaptability and strategic execution capabilities in facing headwind environments. Steady growth in attributable net profit, gross margin recovery, and declining financing costs collectively confirm the improvement in the company's operational quality. Looking forward, the advancement of price adjustment mechanisms, cost benefits from industry oversupply, and transformation in value-added services and comprehensive energy will drive the company into a new growth cycle. Investors may focus on second-half gas sales volume growth and gross margin improvement progress, as the company is poised to become a value benchmark in energy structure transformation. Short-term target price: RMB 1.3; long-term target price: RMB 1.5.