Everbright Securities Company Limited (601788) released a research report stating that Kunlun Energy (00135) experienced an earnings decline in 2025 due to a narrowing gross spread in natural gas sales. Considering the company's slower-than-expected progress in margin recovery, Everbright Securities has revised down its profit forecasts for 2026-2027 and introduced a forecast for 2028. The firm now expects Kunlun Energy's net profit attributable to shareholders for 2026-2028 to be RMB 6.131 billion (down 14%), RMB 6.371 billion (down 16%), and RMB 6.561 billion, respectively. Corresponding earnings per share (EPS) are projected at RMB 0.71, RMB 0.74, and RMB 0.76 per share. Everbright Securities remains positive on the company's core advantages in gas sourcing and the continued expansion of its natural gas sales scale, maintaining an "Overweight" rating. The key points from the report are as follows:
Kunlun Energy released its 2025 annual report. For the year, the company achieved operating revenue of RMB 194.0 billion, a year-on-year increase of 3.71%. Net profit attributable to shareholders was RMB 5.346 billion, a year-on-year decrease of 10.30%.
**Industrial Gas Consumption Drives High Growth, Narrowing Margins Pressure Earnings** In 2025, amid a complex and volatile international environment with rising geopolitical uncertainties, the importance of energy supply security has become more prominent. Domestic natural gas demand continued to grow, with annual consumption increasing by 2.9% year-on-year. Kunlun Energy's natural gas sales business generated revenue of RMB 159.8 billion, up 5.1% year-on-year, but pre-tax profit was RMB 6.756 billion, down 17.6% year-on-year. This was primarily due to the narrowing of the natural gas sales price spread and a decline in gross profit. The company focused on both tapping potential in existing markets and jointly developing new markets. Leveraging its nationwide customer base and network of stations, it developed 11 new city gas projects across eight provinces and regions including Inner Mongolia, Shandong, Guizhou, and Jiangsu, adding annual sales capacity of 780 million cubic meters. Its customer base grew to 17.19 million households. In 2025, the company's total natural gas sales volume reached 59.3 billion cubic meters, up 9.4% year-on-year. This comprised retail gas sales of 33.5 billion cubic meters (up 2.3% year-on-year) and distribution/trading gas sales of 25.7 billion cubic meters (up 20.2% year-on-year). Within retail sales, industrial gas consumption increased by 6.2% year-on-year, while commercial/service use fell by 2.3%, residential use declined by 4.4%, and gas for fueling stations dropped by 33.5%. Industrial gas use contributed the core growth. The company's weighted average purchase-sales price spread for the year was RMB 0.45 per cubic meter, a decrease of RMB 0.02 per cubic meter compared to the previous year, impacting the profitability of its main natural gas sales business.
**Steady Profit Growth in LNG Processing, Storage & Transport; Enhancing Value Across the Chain** In 2025, the company's LNG receiving terminals achieved a pre-tax profit of RMB 3.8 billion, an increase of 5.2% year-on-year. Its LNG plants generated a pre-tax profit of RMB 206 million, surging 144.7% year-on-year. The company's LNG sales achieved a milestone, with annual sales volume exceeding 10 billion cubic meters. The natural gas handling capacity at its Jiangsu and Tangshan receiving terminals reached a record high of 16.53 billion cubic meters, up 3.7% year-on-year. The utilization rate at these terminals reached 90.8%, an increase of 3.2 percentage points year-on-year. The company's LNG plants processed 3.74 billion cubic meters for the year, up 5.3% year-on-year, with an average utilization rate of 67.2%, up 3.2 percentage points year-on-year, reaching a historical best level. The company's offshore LNG bunkering business expanded into the Guangdong and Hong Kong markets, achieving a regular upgrade from offshore anchorage bunkering to wharf bunkering for LNG marine fuel in Hong Kong waters. Bunkering volume reached 176,600 tons, a 60.7% year-on-year increase. In 2025, the Donggang subsea tunnel for the company's Fujian LNG receiving terminal project was fully connected, with overall project progress at 46.32%. Construction of the key supporting terminal for the third phase of the Jiangsu LNG receiving terminal passed the halfway point.
**Significant Increase in LPG Retail Volume; Strengthening Resource Security Capabilities** In 2025, the company's LPG sales business generated a pre-tax profit of RMB 837 million, up 8.3% year-on-year. Annual LPG sales volume was 6.148 million tons, a 6.3% year-on-year increase, of which retail volume was 2.17 million tons, a significant 15.2% year-on-year rise. The company actively developed industrial direct supply customers, adding 8 new industrial direct supply users, with direct industrial sales volume growing 23.4% year-on-year. It optimized resource allocation, maintained a reasonable supply-demand balance in resource-rich regions like Northeast and Northwest China, expanded competitive bidding and online sales, and enhanced resource efficiency through market-oriented approaches.
**Establishing Long-Term Dividend Plan, Highlighting Shareholder Return Commitment** For 2025, the company plans to distribute a dividend of RMB 0.3158 per share, with the absolute dividend per share amount unchanged from 2024, demonstrating its focus on shareholder returns. According to the company's three-year dividend distribution plan for 2026-2028, dividends will be paid twice annually. From 2026 to 2028, the dividend payout ratio will not be less than 50% of the annual net profit attributable to shareholders, and the total annual dividend amount will not be less than the 2025 total of RMB 2.688 billion. In a low-interest-rate environment, companies committed to long-term high dividend payouts are relatively scarce, underscoring the value of Kunlun Energy's consistent high-dividend policy.
**Geopolitical Risks Elevate Energy Security Importance, Highlighting Value of Company's Own Resources** Recent ongoing US-Iran conflicts and Iran's continued blockade of the Strait of Hormuz have cut off Middle Eastern energy exports, significantly impacting crude oil supply. The transportation of key feedstocks like Middle Eastern crude oil, naphtha, and LNG has been severely disrupted, posing a serious threat to China's supply of energy and key petrochemical raw materials. Kunlun Energy's controlling shareholder, PetroChina, provides the company with reliable and stable resource security, helping it effectively implement long-term price linkage mechanisms. Leveraging PetroChina's platform advantages, Kunlun Energy will continue to enhance the market competitiveness of its core natural gas sales business, optimize its sales structure, and achieve continuous improvement in both the volume and quality of natural gas sales. Furthermore, the company's exploration and production business holds equity crude oil sales rights of approximately 8 million barrels per year. A potential rise in the central price level of oil in 2026 could boost performance in the upstream segment, providing some support to the company's overall profitability.
**Risk Factors:** Significant volatility in natural gas prices; Natural gas demand falling short of expectations; Market expansion progressing slower than anticipated.
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