China Gas Holdings (384 HK) Company Update Summary
Core Content Overview
This report provides an update on China Gas Holdings (384 HK), highlighting its strong performance in winter gas sales, government policy support, and strategic collaborations. The analysis concludes that the company is a BUY recommendation with an unchanged target price of HK$37.12, reflecting its potential for outperformance in the volatile market.
Key Highlights
1. Strong Winter Gas Sales Performance
- Gas sales volume growth reached 30-35% during the Dec-Feb period, driven by:
- Increased township gas consumption with rising user numbers.
- Active industrial activities.
- Recovery of commercial business.
- Low base impact due to COVID-19.
- A cold winter boosting gas usage.
- Retail gas sales for FY21E are projected to grow by 20.3% YoY, surpassing management guidance of 15%.
2. Government Policy Support
- On 21 Feb 2021, the Chinese government released a rural development policy emphasizing township gas infrastructure and rural gas storage stations.
- CGH is positioned to benefit from this policy, leveraging its first-mover advantage in micro-pipe network development.
3. Strategic Collaboration with Sinopec
- CGH signed a framework agreement with Sinopec (386 HK/600028 CH) to enhance long-term growth.
- The partnership aims to secure natural gas supply at competitive pricing through Sinopec’s resources and sales networks in city gas, LNG sourcing, and LPG industry chain.
Financial Performance & Projections
Earnings Summary (YE 31 Mar)
| Year |
Revenue (HK$ mn) |
YoY Growth (%) |
Net Income (HK$ mn) |
EPS (HK$) |
YoY Growth (%) |
| FY19A |
59,386 |
12.4 |
8,224 |
1.63 |
32.7 |
| FY20A |
59,540 |
0.3 |
9,188 |
1.76 |
8.1 |
| FY21E |
66,999 |
12.5 |
10,669 |
2.04 |
16.1 |
| FY22E |
80,020 |
19.4 |
13,206 |
2.53 |
23.8 |
| FY23E |
93,045 |
16.3 |
15,568 |
2.93 |
15.7 |
P/E & P/B Ratios
| Year |
P/E (x) |
P/B (x) |
Yield (%) |
| FY19A |
18.6 |
4.5 |
1.5 |
| FY20A |
17.2 |
4.0 |
1.7 |
| FY21E |
14.8 |
3.3 |
1.9 |
| FY22E |
12.0 |
2.7 |
2.4 |
| FY23E |
10.4 |
2.4 |
2.8 |
Net Debt/Equity Ratio
| Year |
Net Debt/Equity (%) |
| FY19A |
69.1 |
| FY20A |
81.5 |
| FY21E |
69.0 |
| FY22E |
45.8 |
| FY23E |
28.3 |
Return on Equity (ROE)
| Year |
ROE (%) |
| FY19A |
24.1 |
| FY20A |
23.2 |
| FY21E |
22.4 |
| FY22E |
22.9 |
| FY23E |
22.9 |
Share Performance
- 1-month return: 3.9% (Absolute) / 6.8% (Relative)
- 3-month return: 6.3% (Absolute) / -2.0% (Relative)
- 6-month return: 35.7% (Absolute) / 17.1% (Relative)
- 12-month return: 5.6% (Absolute) / -3.3% (Relative)
Shareholding Structure
| Holder |
Percentage (%) |
| Beijing Enterprise |
23.7 |
| Liu Minghui |
22.1 |
| Chiu Tat Jung |
19.0 |
| Free float |
35.2 |
Strategic Implications
- Defensive Investment: In a volatile market, CGH is considered a defensive pick due to its stable earnings and strong gas sales performance.
- Market Confidence: The strong winter gas sales are expected to boost market confidence and align with management’s full-year guidance.
- Shareholder Support: The increase in shareholding by major shareholders Liu Minghui and Daniel Chiu reinforces market sentiment.
Financial Summary (YE 31 Mar)
Income Statement
- Revenue is projected to grow steadily, with FY23E reaching HK$93,045 mn.
- Net income is expected to increase to HK$15,568 mn in FY23E, with EPS rising to HK$2.93.
Cash Flow Summary
- Operating cash flow is expected to improve significantly, with FY23E at HK$22,511 mn.
- Investing cash flow is negative in FY21E and FY22E, but expected to stabilize in FY23E.
- Financing cash flow shows a mix of positive and negative values, indicating a balanced capital structure.
Balance Sheet
- Non-current assets are projected to grow to HK$99,975 mn by FY23E.
- Shareholders’ equity is expected to increase to HK$69,137 mn in FY23E, reflecting strong earnings and capital management.
Key Ratios
Sales Mix
| Category |
FY19A (%) |
FY20A (%) |
FY21E (%) |
FY22E (%) |
FY23E (%) |
| Piped gas sales |
45.6 |
45.4 |
49.5 |
50.5 |
51.6 |
| LPG sales |
26.8 |
23.1 |
17.7 |
17.5 |
16.7 |
| Value-added services |
6.6 |
8.4 |
11.6 |
12.1 |
13.1 |
Profitability
| Ratio |
FY19A (%) |
FY20A (%) |
FY21E (%) |
FY22E (%) |
FY23E (%) |
| Operating margin |
21.0 |
23.7 |
24.2 |
24.6 |
24.6 |
| Pre-tax margin |
18.8 |
21.4 |
22.1 |
22.7 |
22.9 |
| Net margin |
13.8 |
15.4 |
15.9 |
16.5 |
16.7 |
| Effective tax rate |
19.7 |
19.4 |
20.0 |
20.0 |
20.0 |
Liquidity & Leverage
| Ratio |
FY19A (x) |
FY20A (x) |
FY21E (x) |
FY22E (x) |
FY23E (x) |
| Current ratio |
0.89 |
0.80 |
0.95 |
1.08 |
1.18 |
| Quick ratio |
9.7 |
10.2 |
11.5 |
12.9 |
14.2 |
| Total debt/equity |
92.9% |
87.2% |
80.2% |
70.8% |
62.1% |
| Net debt/equity |
69.1% |
81.5% |
69.0% |
45.8% |
28.3% |
Conclusion
- Strong winter performance is a key driver of market confidence.
- Government support for rural infrastructure strengthens CGH's strategic position.
- Strategic collaboration with Sinopec enhances long-term growth prospects.
- Financial metrics indicate improving profitability and decreasing leverage.
- BUY recommendation is maintained, with target price unchanged at HK$37.12.
