Since April, TIAN LUN GAS (01600) has demonstrated a strong upward trajectory, leading the gas sector with impressive gains. During the same period, the gas sector index achieved a maximum increase of 17.33%, with the entire gas sector delivering substantial returns in the first half of the year. This positive momentum is expected to continue into the second half, supported by strong fundamentals reflected in the company's latest financial performance.

On August 28, TIAN LUN GAS released its interim results for the first half of 2025, reporting revenue of RMB 42.42 billion, representing a 10.6% year-over-year increase. The board declared an interim dividend of 4.6 cents per share, corresponding to a core profit payout ratio of 35%, demonstrating the company's commitment to consistent shareholder returns. As a high-dividend asset with solid fundamentals, TIAN LUN GAS has naturally attracted market capital, with potential for further stock price appreciation driven by steady business growth and increasing allocation to high-dividend assets.

**Gas Sales Business Provides Stability While Value-Added Services Drive Growth**

From an industry perspective, the natural gas sector in the first half of 2025 presented both opportunities and challenges. Opportunities emerged from favorable policies, including continued government investment in urban gas pipeline renovation and upgrades, with RMB 800 billion allocated annually for gas and water infrastructure improvements. Policy initiatives also accelerated natural gas pricing market reforms and promoted digitalization and intelligent gas infrastructure development, incorporating the entire supply chain into smart regulatory frameworks.

However, challenges were evident in the supply-demand dynamics. The industry exhibited "loose supply, weakening demand" characteristics during the reporting period. Natural gas supply reached 211.6 billion cubic meters in H1 2025, with available market supply of 205.8 billion cubic meters after accounting for losses and light hydrocarbon recovery, resulting in a 1.7 billion cubic meter surplus. LNG terminals actively conducted inventory reduction operations while demand remained subdued.

According to National Development and Reform Commission data, China's apparent natural gas consumption totaled 211.97 billion cubic meters in H1 2025, declining 0.9% year-over-year, with growth rates falling 4.7 percentage points compared to the same period in 2024. This decline was attributed to warm winter effects and weakened industrial demand due to tariff policies.

Despite challenging industry conditions, TIAN LUN GAS achieved sustained business growth through dual-engine development of gas sales and value-added services.

The company's gas sales business encompasses retail and wholesale segments, with revenues increasing 12.8% to RMB 3.64 billion, driven by a 15.3% increase in total gas sales volume to 1.268 billion cubic meters.

In retail gas operations, TIAN LUN GAS strengthened supply guarantee and energy services for industrial and commercial users, stabilized core customer demand, and expanded market reach through "oil-to-gas" and "cylinder-to-pipeline" conversion programs. Pipeline gas users increased 3.6% to 5.933 million, with residential users growing 5.4% and industrial/commercial users rising 9.1%. Retail gas sales maintained stability at 880 million cubic meters, keeping retail business revenue flat year-over-year.

Wholesale operations delivered strong performance as the company accurately assessed heating season peak demand and accelerated market development. Energy trading business expansion drove wholesale gas volumes to 388 million cubic meters, up 74.7% year-over-year, becoming the primary driver of gas sales revenue growth.

Notably, TIAN LUN GAS achieved new progress in gas source optimization through diversified supply sources, multi-source supply arrangements, and technical upgrades enabling intelligent pipeline operations. These improvements reduced transmission losses, promoted pipeline connectivity, and increased comprehensive gas sales margins by 1 cent, maintaining stable retail gas profits and reinforcing the business's role as a performance anchor.

Value-added services emerged as a new growth driver, achieving rapid expansion during the reporting period. The company actively explored new value-added business areas through professional marketing systems, integrated gas safety and personalized renovation services, leveraged old infrastructure renovation opportunities, and enhanced insurance coverage and user conversion rates through diversified services, opening sustainable development pathways.

Value-added services revenue reached RMB 231 million, up 27.6% year-over-year, accounting for 5.4% of total revenue. Renovation business revenue surged 44% to RMB 190 million, demonstrating strong growth momentum and indicating successful market opportunity capture in infrastructure renovation projects. This reflects the accelerating effectiveness of TIAN LUN GAS's strategy to create new growth curves through value-added businesses.

**Improved Supply-Demand Dynamics Expected in H2 with Better Operating Environment**

Having achieved solid progress under challenging H1 conditions, TIAN LUN GAS is positioned for accelerated growth in H2 as industry supply-demand dynamics improve and pricing mechanisms advance.

From the demand perspective, multiple factors suggest H2 natural gas consumption growth recovery with significant downstream demand improvement. As 2025 marks the final year of the "14th Five-Year Plan," government commitment to economic stability provides strong motivation for H2 economic development. Expected Federal Reserve rate cuts in September create additional domestic economic stimulus space, potentially driving industrial production recovery and increasing industrial natural gas demand.

Additionally, diminishing tariff policy impacts should support coastal industrial gas demand recovery, while summer peak electricity demand will boost gas-fired power plant utilization. July electricity load and consumption reached historical peaks with four new records set, continuing high-level operation into August, directly increasing peaking power source demand. As premium peaking energy, natural gas consumption will benefit from increased gas-fired unit utilization.

On the supply side, reduced tariff impacts may improve international natural gas trade, with potential staged increases in domestic LNG imports supporting H2 natural gas import volume recovery. Domestic production is expected to maintain steady growth, keeping supply conditions loose.

With improvements on both supply and demand sides, natural gas pricing mechanisms are expected to accelerate, driving further gas company margin recovery. The August 2025 "Provincial Pipeline Transportation Pricing Mechanism Guidelines" reduced intermediate markups and lowered terminal costs (estimated 0.05-0.12 RMB/cubic meter reduction), creating pricing space. International gas price declines and domestic production growth will ease city gas company cost pressures.

Current policy focus on "anti-involution" and deflation concerns provides a favorable environment for accelerated pricing mechanism implementation. Multiple regions have established dynamic linkage between terminal sales prices and procurement costs, with non-residential gas adjusted monthly and residential gas adjusted annually, benefiting gas companies with industrial and commercial advantages.

**Regional Advantages and Resilient Industrial/Commercial Growth Prospects**

In the accelerating pricing mechanism environment, TIAN LUN GAS enjoys unique customer structure and regional advantages compared to other gas companies.

Customer structure analysis shows that in 2024, gas sales to residential, industrial/commercial, transportation, and wholesale users accounted for 24.1%, 42.8%, 2.5%, and 30.6% respectively of total gas sales. Industrial and commercial markets represent TIAN LUN GAS's strength, positioning the company to benefit from pricing mechanism acceleration.

Geographically, the company's city gas and industrial/commercial projects are primarily located in inland regions including Henan, Jilin, Yunnan, Shandong, and Gansu, with industrial/commercial users oriented toward domestic demand. This positioning reduces exposure to international trade friction compared to coastal export-oriented industries, providing greater business stability in the complex international environment.

Furthermore, TIAN LUN GAS's regional advantages benefit from eastern industrial transfer to central and western regions. From 2018-2023, 137 production bases transferred from eastern to central/western regions, far exceeding 84 overseas relocations, benefiting TIAN LUN GAS. Abundant gas resources in central/western regions support improved margins.

Previous research indicated that TIAN LUN GAS's industrial/commercial customers possess regional advantages, with future central/western region industrial transfer trends supporting significant growth potential in Gansu's Baiyin and Jingyuan operations. Abundant Gansu gas sources favor margin pricing in Baiyin and Jingyuan, positioning Gansu operations as a major gas sales growth engine.

Based on customer structure and regional advantages plus improving H2 industry conditions, TIAN LUN GAS has detailed H2 business plans in its financial report to ensure high-quality development goal achievement and successful completion of the "14th Five-Year Plan" final year.

As TIAN LUN GAS continues strengthening its city gas foundation and innovating diversified value-added services, fundamental improvements are expected with further H2 growth potential. Combined with the company's consistent high-dividend approach, TIAN LUN GAS represents a high-dividend asset with steadily improving fundamentals.