20210823-招银国际-华润燃气-01193.HK-1H21_results_beat__accelerating_new_business_growth_6页_955kb

China Resources Gas (1193 HK) - Company Update Summary

Core Content Overview

China Resources Gas (CRG) reported strong first-half of 2021 (1H21) results, with net profit reaching HK$3,250 million, a 35.6% year-over-year (YoY) increase, surpassing market expectations. The company's revenue also grew by 52.5% YoY to HK$34.4 billion, driven primarily by piped gas sales. The impressive growth in gas sales was fueled by robust performance in industrial and commercial sectors, with volume growth of 41.3% and 36.7% respectively.

Looking ahead to the second half of 2021 (2H21E), CRG anticipates continued strong gas consumption, although it warns of potential supply constraints during the winter heating season, which may affect dollar margins. The company is actively pursuing a "1 + 2 + N" strategy under the 14th Five-Year Plan (FYP), which focuses on core gas sales, value-added services (VAS), integrated energy (IE), and new opportunities such as hydrogen refueling and EV charging stations. CRG has restructured its business to align with this strategy, and the report expects faster development in VAS and IE.

The target price (TP) was raised to HK$48.20, reflecting an optimistic outlook for gas sales growth, while the rating remains HOLD, indicating the stock is expected to outperform the market by a modest margin.

Key Financial Highlights

Earnings Summary (YE 31 Mar)

• Revenue (HK$ mn): FY19A: 56,976; FY20A: 55,864; FY21E: 74,399; FY22E: 80,029; FY23E: 85,989
• Net Income (HK$ mn): FY19A: 5,043; FY20A: 5,152; FY21E: 6,339; FY22E: 6,856; FY23E: 7,497
• EPS (HK$): FY19A: 2.32; FY20A: 2.31; FY21E: 2.85; FY22E: 3.08; FY23E: 3.37
• YoY Growth (%): FY21E: 23.6%; FY22E: 8.2%; FY23E: 9.4%
• Consensus EPS (HK$): FY21E: 2.70; FY22E: 3.06; FY23E: 3.10
• P/E (x): FY21E: 16.7; FY22E: 15.5; FY23E: 14.1
• P/B (x): FY21E: 2.72; FY22E: 2.5; FY23E: 2.2
• Yield (%): FY21E: 2.4; FY22E: 2.6; FY23E: 2.9
• ROE (%): FY21E: 16.3; FY22E: 15.9; FY23E: 15.7

1H21 Results

• Gas Sales Volume Growth: 29.5% YoY to 17.2 bcm
• Industrial and Commercial Growth: 41.3% and 36.7% YoY
• Net Profit Growth: 35.6% YoY
• Interim Dividend: Maintained at HK$0.15/share

Financial Ratios

• Gross Profit Margin: Declined slightly to 25.5% in 1H21 from 26.9% in FY20
• EBIT Margin: 17.1% in 1H21, down 1.4ppt from FY20
• Effective Tax Rate: Stabilized at 25.0%
• Net Margin: 9.44% in 1H21, down 1.2ppt YoY
• Current Ratio: 0.82 in FY22E, up from 0.74 in FY21E
• Quick Ratio: 0.79 in FY22E, up from 0.72 in FY21E
• Cash Ratio: 0.39 in FY22E, up from 0.36 in FY21E
• Debt/Equity Ratio: Declined to 10.2% in FY22E from 20.8% in FY21E
• ROE: 15.63% in FY21E
• ROA: 6.08% in FY21E

Valuation and Outlook

DCF Valuation (HK$ mn)

• Terminal Value: 120,879
• Firm Value: 114,150
• Equity Value: 111,510
• Share Fair Value (HK$): 48.20
• 2021E PER: 16.9
• 2022E PER: 15.6

Key Operating Forecasts

• City Gas Sales Volume (mcbm): Expected to grow at a steady pace, reaching 35,550 mcbm in FY21E and 39,158 mcbm in FY22E
• Residential Connection Growth: 3.22 million in FY21E, expected to decline slightly in FY22E
• EBIT Growth: Projected to rise from 10,976 HK$ mn in FY21E to 12,298 HK$ mn in FY23E
• Free Cash Flow (HK$ mn): 6,527 in FY21E, projected to increase to 7,983 in FY23E

WACC Calculations

• Cost of Debt: 5.0%
• After-Tax Cost of Debt: 3.8%
• Cost of Equity: 8.02%
• WACC: 6.9%

Share Performance and Market Position

• Market Cap (HK$ mn): 110,378

• Avg 3 Mths Turnover (HK$ mn): 116.76

• 52-Week High/Low (HK$): 52.25 / 1.57

• Total Issued Shares (mn): 2,314

• Shareholding Structure:

  • CR Company Ltd: 61.5%
  • The Capital Group: 9.80%
  • Free Float: 28.8%

• Share Performance (Bloomberg):

  • 1-Month: -1.9% (Absolute); 7.7% (Relative)
  • 3-Months: 4.8% (Absolute); 19.9% (Relative)
  • 6-Months: 22.2% (Absolute); 50.7% (Relative)
  • 12-Months: 30.2% (Absolute); 29.9% (Relative)

Earnings Revision

• Total Gas Sales Volume (mcbm): Revised upward by 3.9% in FY21E
• Revenue (HK$ mn): Revised to 74,399 in FY21E, up 4.2% from previous estimates
• Net Income (HK$ mn): Revised to 6,339 in FY21E, up 6.8% from previous estimates
• EPS (HK$): Revised to 2.85 in FY21E, up 5.7% from previous estimates

Strategic and Operational Insights

• CRG's "1 + 2 + N" strategy is expected to drive future growth, with a focus on value-added services and integrated energy solutions.
• The company has reorganized its business structure to better align with this strategy.
• Despite the strong performance in gas sales, the report notes that CRG is still lagging behind peers in the development of new business areas.
• The report highlights that while the company is fairly priced, it may take time to demonstrate the growth potential in VAS and IE.

Analyst Note

• The report maintains a HOLD rating, suggesting the stock is expected to deliver returns between +15% and -10% over the next 12 months.
• The target price was raised to HK$48.20, reflecting optimism about future gas sales growth.
• The report emphasizes that CRG is well-positioned for growth in the gas distribution sector but may need time to fully realize its new business potential.

Disclosures

• The report is prepared for informational purposes only and not for individual investment advice.
• CMBIS does not guarantee the accuracy or completeness of the data.
• Investors are advised to consult with professional financial advisors for personalized investment decisions.