20180828-招商证券_香港_-中国燃气-00384.HK-Strategically_positioned_in_Shandong_province_6页_1mb

报告摘要

China Gas (384 HK) Summary

Core Content

China Gas (384 HK) is a company that has made a strategic move by acquiring a 41% stake in SPNG (Shandong Petroleum and Natural Gas Co. Ltd) through a capital increase and shareholding expansion. This strategic partnership is with Shandong Luxin Investment, a government-owned investment and financing vehicle. The transaction is expected to be completed within 1-2 months, and it is anticipated to be value-accretive for China Gas in the mid-to-long term.

Main Points

Strategic Acquisition: China Gas Industrial, a subsidiary of China Gas, is acquiring a 41% stake in SPNG for RMB800mn. Shandong Luxin is increasing its stake to 43.4% with a RMB720mn capital injection.
Post-Transaction Valuation: After the transaction, SPNG's net assets are expected to reach RMB1.7bn, leading to a P/B ratio of 1.1x, which is significantly lower than China Gas's 4.5x FY19E P/B.
Strategic Synergy: The acquisition aims to integrate gas business across various areas, including upstream resources, pipeline construction, LNG terminals, storage, city and rural gas projects, and distributed energy resources in Shandong province.
Operational Impact: China Gas's involvement is expected to improve SPNG's profitability, with SPNG's ROA at 5.0% in 2017E compared to China Gas's ROA of 9.4% in FY18.
Future Asset Injection: There is potential for Shandong Luxin to inject more gas assets into SPNG, enhancing its resource base.
Valuation and Rating: China Gas is currently rated as "BUY" with a target price of HK$37.0. The current price is trading at 14.4x FY20E P/E, which is 6% below its five-year historical average of 15.4x.
Financial Performance: The company has shown consistent growth in revenue, gross profit, and net profit from 2017 to 2021E. The recurring EPS is projected to grow at a CAGR of 20% from 2018 to 2020E.
Dividend Yield: The dividend yield is expected to increase from 1.0% in 2017 to 2.5% in 2021E.
Debt and Leverage: Net debt/equity is projected to decrease from 78.9% in 2017 to 46.9% in 2021E, indicating improved financial health.
Investment Outlook: The company is expected to grow its city gas sales volume at a rate of 25% per annum, while wholesale gas sales are projected to grow at double-digit rates.

Key Financials

Metric	2017	2018	2019E	2020E	2021E
Revenue (HK$mn)	31,993	52,832	68,219	84,944	103,687
Gross Profit (HK$mn)	8,377	11,671	14,597	17,990	21,738
Net Profit (HK$mn)	4,148	6,095	7,560	9,584	11,393
Recurring EPS (HK$)	0.91	1.25	1.47	1.80	2.14
Core P/E (x)	28.5	20.7	17.6	14.4	12.1
P/B (x)	7.2	6.2	4.5	3.7	3.1
Dividend Yield (%)	1.0	1.3	1.7	2.1	2.5
ROE (%)	21.6	24.9	23.1	23.6	23.5
Net Debt / Equity (%)	78.9	73.7	63.7	57.0	46.9

Shareholding Structure

Shareholder	Stake (%)
Beijing Enterprises Group	24.4%
China Gas Group Ltd.	14.9%
SK E&S Co. Ltd.	13.9%
Capital Group Companies Inc.	9.0%
No. of shares outstanding (mn)	5,078
Free float (mn)	1,747

Key Risks

Execution Risk: Higher-than-expected execution risk for rural gas connections.
Demand Risk: Lower-than-expected gas demand.
Cost Pass-through: Failure to pass through increased gas costs to end-users during the winter season.

Investment Ratings

Rating	Definition
BUY	Expect stock to generate 10%+ return over the next 12 months
NEUTRAL	Expect stock to generate +10% to -10% over the next 12 months
SELL	Expect stock to generate loss of 10%+ over the next 12 months

Strategic Overview

SPNG Operations: SPNG is involved in building natural gas pipeline networks and integrating natural gas resources in Shandong province.
Shandong Luxin Role: As a government-owned investment vehicle, Shandong Luxin owns natural gas pipeline networks and over 10 city gas projects in Shandong and Hebei.
China Gas's Presence: As of 31 Mar 2018, China Gas had 18 city gas projects in Shandong province.
Synergy and Growth: The strategic move aims to leverage both companies' strengths and resources to expand and enhance gas operations in Shandong province.

Financial Summary Highlights

Asset Growth: Total assets are projected to grow from HK$60,222mn in 2017 to HK$121,582mn in 2021E.
Liquidity: The company's cash is expected to fluctuate, with a closing cash balance of HK$5,158mn in 2021E.
Debt Reduction: Net debt/equity is expected to decline significantly, from 78.9% in 2017 to 46.9% in 2021E.
Profitability: Core profit is projected to grow at a CAGR of 20% from 2018 to 2020E, with a recurring EPS of HK$2.14 in 2021E.

Valuation and Performance

Price Performance: Over the past year, China Gas (384 HK) has shown a return of 39.3%, outperforming the Hang Seng Index (1.5%).
Market Cap: HK$128,735mn.
Avg. Daily Volume: 2.95mn shares.
BVPS (2019E): HK$5.73.

Analyst and Regulatory Information

Analyst Disclosure: Analysts certify that the views expressed reflect their personal opinions and are not influenced by compensation.
Regulatory Disclosure: Please refer to the important disclosures on the CMS HK website for detailed information.
Disclaimer: This document is for informational purposes only and does not constitute investment advice. It is not directed at all investors and may not be suitable for everyone.

Conclusion

China Gas's strategic acquisition of SPNG is expected to have a positive impact on its long-term value and growth. The company's financial performance has shown consistent improvement, and its valuation is considered attractive compared to its peers. Investors are advised to consider accumulating shares during recent weakness and to make independent investment decisions.

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