During the first half of 2026, the city gas sector experienced accelerated reform across the board. A wave of policies targeting safety supervision, price regulation, and compliance management landed in rapid succession, pushing the industry into a new phase of standardized, high-quality development. As the transformation enters its deeper stages, the fundamental logic of the sector is shifting decisively from "scale-driven" to "quality-driven." For small and mid-sized city gas operators, the pressing survival question is how to pivot from mere volume expansion to a genuine qualitative breakthrough amid this industry growth transition.
On August 28, TIAN LUN GAS released its interim results for 2026. As a key player in China's gas sector, this earnings report offers a highly instructive case study for the challenge outlined above. The financials show that during the reporting period, TIAN LUN GAS recorded revenue of RMB 4.331 billion, a year-on-year increase of 2.1%, with adjusted core profit reaching RMB 97 million. The steady revenue growth not only underscores the robustness of its core business but also highlights the operational resilience emerging from its strategic evolution from a city gas supplier into a comprehensive energy service provider.
Optimized Business Structure Demonstrates Resilience, Second Growth Curve Approaches Double-Digit Margin Expansion
From an industry perspective, the accelerated transformation was just one facet of the policy and regulatory landscape for the gas sector in H1 2026. Far more challenging were the structural pressures on both the cost and demand fronts. On costs, geopolitical turbulence drove up international gas prices, inflating procurement expenses. Meanwhile, residential gas prices remained under livelihood-focused controls, and commercial and industrial prices faced competitive market constraints, creating a time lag in passing costs downstream and squeezing purchase-sale margins. On the demand side, the sector experienced structural contraction. National apparent gas consumption totaled 206.85 billion cubic meters in H1 2026, down 2.4% year-on-year—a return to negative growth. But this figure masks a deeper challenge: a systemic shift in growth engines. The twin drivers that powered two decades of industry expansion—rising gas penetration rates and new connections—have simultaneously stalled. In the near term, commercial and industrial gas demand growth is weak, while transportation and distributed energy face intensifying substitution from new energy sources. As industry demand transitions into a "stock game," the growth paradigm for city gas companies must pivot from external expansion to internal value extraction, seeking fresh value anchors in existing markets through refined operations and comprehensive services.
Amid these overlapping challenges—accelerating industry transformation, cost pressures, and structural demand headwinds—TIAN LUN GAS anchored itself in safeguarding residential supply while consolidating its core natural gas competitive advantages. It actively cultivated comprehensive services closely synergetic with its main gas business to unlock deeper value from existing resources. In gas sales, the company continued to optimize supply sources, pursuing diversified procurement, technology-driven enhancements, and integrated facility utilization to strengthen supply security. As of June 30, 2026, its cumulative medium and high-pressure pipeline network reached 9,763 kilometers. Building on this foundation, TIAN LUN GAS advanced price pass-through initiatives, deepened supply assurance and energy services for commercial and industrial users, secured core customer demand, and tapped into the existing market's potential. It also precisely assessed market and customer needs to vigorously develop its energy trading business. Through these combined efforts, total gas sales volume grew 6.1% to 1.346 billion cubic meters during the reporting period, significantly outpacing the industry's overall performance against a 2.4% national consumption decline. Driven by higher sales, gas sales revenue rose 8.0% to RMB 3.93 billion. Within this, retail sales volume increased 1.5% to 893 million cubic meters, supported by a 2.6% uptick in residential sales and 3.0% in commercial and industrial sales, pushing retail revenue up 1.9% to RMB 2.612 billion—a steady core foundation. Wholesale operations, benefiting from expanded energy trading, saw volume climb 16.7% to 453 million cubic meters, lifting wholesale revenue by 22.3% to RMB 1.318 billion. The wholesale segment's high-elasticity growth was the key pillar behind the company's total sales volume outpacing the industry.
Alongside steady gas sales growth, TIAN LUN GAS leveraged its vast existing customer base, using routine in-home safety inspections and customized gas pipeline renovations as two primary touchpoints to extend its comprehensive service chain and diversify offerings. During the reporting period, comprehensive services revenue grew 1.8% to RMB 235 million, with gross profit rising 9.9% to RMB 125 million. The fact that profit growth significantly outpaced revenue growth signals a rising share of high-value-added segments like personalized kitchen renovations, which are becoming the core engine driving profitability in this division. Notably, this interim report reflects a continued optimization of the company's business structure. Gas sales now account for 90.68% of total revenue, further cementing the core business's prominence. Meanwhile, comprehensive services have solidified their role as the second growth curve, contributing 5.43% of total revenue. Traditional engineering, installation, and services—deliberately scaled back by management—now represent only about 2.75% of revenue, rendering their marginal impact increasingly negligible. Clearly, gas sales as the mainstay and comprehensive services as the second curve have become the core pillars of TIAN LUN GAS's high-quality transformation.
From Stability to Growth: Three Rationales Supporting a Profit Recovery
If TIAN LUN GAS's H1 2026 performance is defined by "stability"—securing both business scale and structure—then the second half signals a shift toward "growth," with an anticipated improvement in earnings quality poised to drive a tangible profit rebound. The first and most certain driver of this recovery is margin repair, which offers the most direct path to profit elasticity. As a company with strengths in commercial and industrial gas, this segment will be the key pillar of margin restoration. TIAN LUN GAS's city gas and commercial-industrial projects are primarily located in inland provinces such as Henan, Jilin, Yunnan, Shandong, and Gansu. In 2025, commercial and industrial gas accounted for roughly 44.86% of its customer mix, far exceeding the industry average. These inland commercial and industrial users are oriented toward domestic demand—spanning rare earths, chemicals, metals, building materials, and other foundational and strategic industries—making them less vulnerable to international trade frictions and ensuring rigid gas demand. Building on this, the company employs customized, customer-by-customer service strategies to mine the existing commercial and industrial market, tailoring retrofit solutions for large industrial users to maximize gas supply efficiency. With low resistance to price pass-through and high elasticity for margin repair, this segment provides TIAN LUN GAS with its strongest alpha advantage over coastal export-oriented city gas operators, as well as the most solid demand-side support for margins returning to reasonable levels. The company has indicated that in H2, it will continue to broaden multi-source procurement channels, dynamically allocate long-term contracts and spot supplies, hedge upstream price volatility through refined purchasing, closely track terminal gas price linkage policies, smooth price transmission, and stabilize reasonable spreads to ensure robust profitability in its core business.
Running parallel to margin repair is the dual-engine push on volume. In H1 2026, TIAN LUN GAS's total gas sales significantly outperformed national apparent consumption, demonstrating resilience. Heading into H2, the company will, on one hand, deepen operations within its existing customer base and tap commercial and industrial gas potential, leveraging the rigid demand from inland domestic-oriented industries to secure its sales foundation. On the other, it will seize urban renewal opportunities to expand residential users and capitalize on elevated LPG prices to drive gas conversions among non-residential users, activating fresh demand. With this dual-track approach of cultivating existing markets and expanding into new ones, sustained and steady growth in gas sales carries high certainty.
If margin repair and volume growth are the two wings of profit recovery, then the high gross margins from comprehensive services are the decisive factor in improving profit quality. In H1 2026, gross profit growth in this segment far outpaced revenue growth, directly confirming its internal structural optimization. Based on the segment's RMB 235 million revenue and RMB 125 million gross profit, its gross margin stands at an impressive 53.19%—dramatically higher than the company's overall gross margin of 9% for the period. This underscores the segment's critical role in driving profit repair. The key to these high margins lies in deep engagement with existing users, which requires no additional customer acquisition spending, thereby yielding higher per-unit profitability. This is precisely why comprehensive services' gross profit growth has outpaced gas sales and remains largely insulated from gas volume cycles. TIAN LUN GAS stated that in H2, it will use routine in-home safety inspections as a service entry point, building user trust through standardized, professional inspection procedures, and precisely identifying diversified derivative service needs. It will also systematically advance customized gas retrofit services, unifying construction standards and service processes to continuously enhance user experience and cultivate a reputation for quality service. Additionally, the company is focusing on the smart safety kitchen segment, vigorously promoting its own brand, establishing core strengths around "safety, quality, and health," and steadily increasing the revenue contribution and resilience of its comprehensive services division. Looking ahead, with over 6 million cumulative residential pipeline gas users, the scale of TIAN LUN GAS's comprehensive services is poised to keep expanding. As the share of high-margin business lines rises, this segment's contribution to profits will evolve from a bonus to a profit pillar, adding substantial value to the company's high-quality development trajectory.
In summary, what markets should most take away from TIAN LUN GAS's interim results is not a few isolated growth figures, but a business flywheel that is closing its loop: robust volume growth buys time and space for structural transformation, while ongoing structural optimization, in turn, builds momentum for profit recovery. The core engine of this flywheel comes from a synergistic internal effect—"gas driving comprehensive services, and comprehensive services boosting gas"—forming a complete closed loop. This signals that the company is accelerating its upgrade from a single energy supplier to a comprehensive operations and services provider covering the full lifecycle of user needs, a shift now substantively confirmed in its financials. Nevertheless, the market has yet to fully recognize TIAN LUN GAS's asset quality and transformation progress. Currently, its PB valuation sits at historical lows, with its true worth clearly undervalued. Stable shareholder returns further underscore its long-term allocation appeal. In H1 2026, with core profit of RMB 97 million, the board recommended an interim dividend of RMB 3.48 cents per share, translating to a 35.0% payout ratio of core profit—demonstrating a firm commitment to rewarding shareholders. Furthermore, since early 2026, TIAN LUN GAS has consistently conducted share buybacks in the HK$2.8–HK$3.4 range, repurchasing a cumulative 6.615 million shares for nearly HK$20 million, all of which were subsequently canceled. Management's deployment of "real money" to continually repurchase shares at low levels is not only a proactive correction of the market's significant undervaluation of intrinsic worth but also a firm endorsement of the fundamentals' impending stabilization and recovery.
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