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Gas:Risk-reward trumps pricing/demand woes; CR Gas up to CL-Buy

研究机构:高盛高华证券 研究员:Frank He,Franklin Chow,Shuai Liu,Marcus Chu 发布时间:2015-01-22

We see falling oil price leading to muted gas price hikes in 2015

We believe the recent oil price correction may accelerate the progress ofgas price reform, i.e. average gas price (/m3) to rise by Rmb0.08 (or 3% yoy)to Rmb2.65 in July 2015 as incremental and inventory volume pricesmerge, followed by a closer linkage between oil and gas prices. We expectthis will ease the dollar margin and gas sales pressure for gas utilities.Under our scenario analysis, we forecast 2015E-2017E blended city gateprices to change within the range of a decrease of Rmb0.10/m3 to anincrease of Rmb0.08/m3.

Trimming gas demand forecast; secular growth potential remains。

We revise down our gas demand forecast for 2014E-2020E by 3%-11%,mainly to factor in a slower macro economy and a declining gas pricediscount against competing fuels. We now project gas demand to registeran 8.2% CAGR in 2014E-20E (9.9% previously). However, we still see ampleroom for gas to replace coal in China in the long run. State Council plans tophase out 0.2mn steam tonnes of coal boilers during 2014-15, which isequivalent to 59bn m3 natural gas demand and represents 32% of China’s2014 total consumption. The State Council also budgets 112bn m3 of gasdemand by 2020 to fulfill the coal to gas projects across the nation. We findnatural gas only accounts for 7% of total primary energy consumption forkey industrial users in 2012, vs. over 80% in the US.

Valuation turns more reasonable; CR Gas (CL-Buy) the top pick。

As the sector has returned to the mid-cycle valuation of 15X P/E vs. 18X inearly 2014, we view risk-reward as more favorable. We believe bottom-upbased earnings growth analysis is still the most effective methodology topick stocks, and we focus on operating leverage, margin visibility, andproject acquisition potential. We upgrade CR Gas from Neutral to CL-Buyas it has the potential to provide earnings upside in 2015, mainly driven bycost-cutting in SG&A, turnaround of key projects such as Tianjin, as well asresumption of M&A strategy. We also upgrade Kunlun to Buy as theheadwind in oil E&P and LNG vehicle has largely been priced in and wesee limited NAV contribution from those divisions. We downgrade Suntiento Neutral on deteriorating wind power project returns and slowing gassales. We adjust our 2014E-16E EPS estimates by -37% to 12% for our gascoverage and our 12-month target prices by -2% to -28% accordingly.

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