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China Gas Utilities:Weak gas demand in 1Q; Volume risk more detrimental to Gas vs. IPPs

研究机构:德意志银行 研究员:Michael Tong 发布时间:2015-04-29

1Q gas consumption growth slows down further to 4.8% yoy

According to the preliminary data release from the NDRC, China’s apparent natural gas (NG) demand in 1Q15 was up only 4.8% yoy to 50.2bcm. The growth slows down significantly as compared to 8.1% in 1Q14 and 6.2% in 2M15. We show the demand growth table in sidebar. We believe it is too early to get excited about demand recovery/margin expansion from the small gas tariff cut in April. In addition to reduced competitiveness of gas vs. alternative fuels, the demand is also affected by weak macro outlook/industry activities, as is the case of power demand. However, unlike IPPs with coal price falling together with weak demand, the volume risk will be more negative to gas distributors given their fixed cost base. Plus, due to the reduced pricing competitiveness, we think the cost savings post the city-gate tariff adjustment will be passed-through to end-users.

NG competitiveness still unfavorable despite the small cut in blended price

Based on the NDRC notice on 28 Feb 2015, the blended gas tariff will be reduced by c.3% (DBe) effective from 1 April 2015. Nevertheless, the pricing competitiveness vs. alternative fuels remains unfavorable - the price of converged natural gas vs. gasoline/diesel have seen narrowed discount to 2- 18% from 20-35% a year ago, while the pricing vs. LPG and fuel oil worsened to 39-67% premium.

NG vs. LPG: 39% premium (vs. 19% discount in Apr 2014);

NG vs. fuel oil: 67% premium (vs. 9% premium in Apr 2014);.

LNG vs. diesel: 2% discount (vs. 20% discount in Apr 2014);

CNG vs. gasoline: 18% discount (vs. 35% discount in Apr 2014).

In addition to volume and margin pressure, growth in connection income is also facing headwinds, given a continued slowdown in residential property new starts (3M15 down 21% yoy), although the risk could be more apparent in FY16 due to buffer from existing unconnected household. For more details, please see “China Gas Utilities - De-rating yet to approach the end; cutting earnings and target prices”, published on 10 February 2015.

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