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China Gas Utilities:Reasons to stay positive.Key takeaways from JPM Environmental Forum

研究机构:摩根大通(亚太) 研究员:Elaine Wu,Boris Kan 发布时间:2015-10-27

China city gas volume sales grew by 5-10% in 3Q and will likely improveafter the gas price cut on 1 Nov, according to the gas utilities that attended theJ.P. Morgan Environmental Forum in HK this week. They added that a gasprice cut of Rmb0.6-0.7/m3 would be enough to attract glass and otherindustrial manufacturers to use gas again. Despite weaker revenue growth, netprofit growth is expected to be >15% in 2015 for most of our covered gasnames, driven by new connections and tighter cost controls. We reiterate ourOW on China Gas, CR Gas, BJE and ENN.

Gas volume sales growth of 5-10% yoy. Most of the gas utilities thatattended our Forum saw gas volume growth of 5-10% YTD, comparable tothe level recorded in 1H15. There wasn’t much improvement in 3Q becausenatural gas prices were still uncompetitive against oil-based fuels. Glass andceramics manufacturers were hit hard, with some going out of business andothers switching to cheaper fuel types.

A Rmb0.6-0.7/m3 price cut would help. The NDRC is contemplatingRmb0.6-0.7/m3 cut (c 25-30%) on the city gate price for non-residentialusers. The gas utilities said this would be enough to attract some industrialcustomers to use gas again. In addition, upstream oil companies may begiven some flexibility in changing gas prices during peak and low seasons.

Net profit growth of >15%. Gas utilities like CR Gas and ENN have puttighter grip on administrative cost and gas leakage rate to improveoperational earnings. That, coupled with more new connections, should helpthese utilities deliver EPS growth of 15-20% in 2015, on our estimates.

Our top picks are China Gas (fastest growing gas utility with EPS growthof >20%) and China Resources Gas (most leveraged to M&A). For moreattractive valuation, we recommend Beijing Enterprises, which is trading at10x FY16E P/E vs peers' 14x and its historical average of 16x.

Forum key takeaways from China Gas, China Resources Gas, ENN,Beijing Enterprises and Suntien are on pages 3-7.

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