Kunlun Energy’s 1H26 revenue was RMB100.04bn (+2.6% YoY) and the attributable net profit (NP) was RMB3.31bn (+4.6% YoY), approaching the upper bound of our forecast range (RMB3.32bn). The company proposed an interim dividend of RMB0.1916/share (+15.4% YoY), representing an interim payout ratio of 50% and fulfilling its commitment to maintain a 2026-2028 attributable payout ratio of ≥50%. In 1H26, the company repurchased 29,024k shares for HKD207mn; as of the quiet period, cumulative repurchases reached 38,954k shares (c. 45% of this repurchase plan). We are bullish on the company’s high-dividend attribute and gas-power renewable transition potential. Maintain BUY.
Retail gas volume fell YoY with pass-through rate improving
For 1H26, retail gas volume dropped by 1.7% YoY to 16.38bcm, as high international gas prices dampened domestic demand (1H26 nationwide apparent consumption fell by 2.4% YoY). Specifically, industrial/commercial/residential/ vehicle & vessel refueling volumes changed by -0.8/-5.5/-2.2/-9.5% YoY. The company lowered its 2026 retail gas volume guidance from +3% YoY to flat. For 1H26, the retail dollar margin was RMB0.43/cbm (-RMB0.01/cbm YoY), while the residential pass-through ratio rose to 72% (vs 69% at end-2025), with residential pass-through implemented across six operating subsidiaries in Hubei, Hunan, Yunnan, and other regions. With industrial demand stabilizing and price pass-through deepening, we expect 2H26 retail gas volume to improve sequentially, with the full-year dollar margin stabilizing at c. RMB0.45/cbm.
Receiving terminals pressured; plant utilization hit record high
For 1H26, the pretax profit of the LNG processing and storage/transportation segment reached RMB1.77bn (-3.9% YoY). Receiving terminals were affected by Middle East geopolitical disruptions and temporary imbalances in overseas long-term and spot cargo delivery paces, resulting in throughput dropping by 8.7% YoY, the average utilization rate falling 9.3pp YoY to 77.5%, and the terminal profit declining by c. RMB210mn YoY. LNG plants boosted efficiency against trends: 13 plants processed 2.27bcm (+29.7% YoY), with an average utilization rate of 78.1% (+21.0pp YoY), setting a record high since commissioning. Offshore LNG bunkering reached 94k tonnes (+26.0% YoY), driving plant profit up by c. RMB130mn YoY and partially offsetting terminal profit declines.
Raise target price to HKD8.72 on FX changes
Based on 1H26 gas volume and dollar margin changes, we lower our forecasts for the natural gas segment profit. We project 2026/2027/2028 attributable NP at RMB5,452/5,684/6,467mn (-0.02/-4.1/-4.7% vs our previous estimates) and core NP at RMB5,972/6,204/6,987mn, implying core EPS of RMB0.69/0.72/0.81. We value the stock at 11x 2026E PE, above its three-year average of 8.8x, for our target price of HKD8.72 (previous: HKD8.63 on 11x 2026E PE), based on HKD/RMB central parity rate of 0.87. We are bullish on a long-term value re-rating, but lower our PE premium slightly due to slower-than-expected earnings growth.
Risks: slowdown in domestic demand growth; high international gas prices dampening end-user demand; LNG delivery pace and geopolitical disruptions; price pass-through and M&A progress below expectations.