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Gas:Potential natural gas VAT hike may have limited earnings impacts

研究机构:高盛高华证券 研究员:Franklin Chow,Frank He,Marcus Chu,Shuai Liu 发布时间:2015-05-06

VAT on natural gas may be increased from 13% to 17% in October

According to an ICIS news report on 30 April, the Ministry of Finance (MOF)plans to increase the value-added tax (VAT) on natural gas from the current13% to 17% in October 2015. The MOF also reportedly proposes to reclassifyVAT categories and intends to raise VAT to 17% for all other industries (suchas water, agriculture) which are currently subject to a 13% VAT rate.

Limited earnings impact on gas E&P and utility companies

We expect the potential VAT hike to have a limited earnings impact on bothupstream exploration and production (E&P) firms and downstream gasutilities companies as the timing for the VAT rise could coincide with a gasprice cut given lower energy/oil prices. We also think the NationalDevelopment and Reform Commission (NDRC) will lower the city-gate pricein 3Q15 to factor in the fall in oil prices and the latest price trends amongcompeting oil fuels. We expect this to facilitate upstream gas producers anddownstream gas utilities in their selling price adjustment as they factor in thepotential VAT hike.

We expect higher taxes to be more than offset by lower energy prices

For gas utilities, we estimate a 4ppt change in end-tariff would lead to onlyRmb0.02/m3 change in gas utilities’ dollar margin, based on an averagegross dollar margin of Rmb0.6/m3 generated by listed gas distributors. ForE&P firms, we think the impact will be limited as higher taxes should bemore than offset by lower energy prices, as in the recent cases for gasolineand diesel.

Dollar margin expansion to be expected; Buy CR Gas, PetroChina

We maintain our positive view on fundamentals for gas utilities, mainly dueto potential margin upside from further gas price cuts. Although overall gasconsumption in 1Q15 grew by only 4.8% yoy, below our FY2015 forecast of9.2%, we expect 2Q15 gas demand growth to recover after the priceadjustment in April 2015 as more customers are switching from oil to gas,according to our channel checks with gas utilities. Also, we think the 2015Edollar margin may surprise on the upside as gas distributors generally passthrough less than their procurement cost decline in 2Q15. We reiterate ourBuy rating on CR Gas (CL) and PetroChina relative to our coverage.

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