20180528-招商证券_香港_-A_further_step_towards_liberalization_7页_1mb

Gas Sector Industry Report Summary

Core Content

The gas sector in China is undergoing a significant reform aimed at liberalizing the market by standardizing the city gate price for residential and non-residential users. The reform, effective from 10 June 2018, aligns the residential city gate price with the non-residential price, with an average of RMB1.4 per cubic meter for residential and RMB1.7 per cubic meter for non-residential. The reform allows for price fluctuations, with an upward limit of 20% from the benchmark price, and the remaining difference will be adjusted over the next year. Additionally, the VAT is standardized at 10%, and seasonal pricing is introduced to encourage market-oriented trading through exchanges in Shanghai and Chongqing.

The government will provide subsidies to low-income residential users and those in rural areas who have adopted coal-to-gas conversion in Northern China. These subsidies are funded by both local and central governments. The reform is expected to have a positive long-term impact on the sector, as it promotes more effective resource allocation and ensures a more stable gas supply, particularly during the winter season.

Main Points

• Price Reform:

  • Effective from 10 June 2018.
  • Residential gas price aligned with non-residential at RMB1.4 and RMB1.7 respectively.
  • Price fluctuations allowed, with an upward limit of 20% and no downward limit.
  • Maximum adjustment of RMB0.35/cu m in the first phase, with the rest to be adjusted within a year.
  • Standardized VAT at 10%.

• Seasonal Pricing:

  • Introduced to promote market-oriented trading.
  • Encourages flexibility and efficiency in pricing mechanisms.

• Subsidies:

  • Targeted at low-income users and rural households in Northern China.
  • Funded by both local and central governments.

• Mid-Term Impact on City Gas Operators:

  • Short-term margin squeeze due to cost pass-through delays.
  • Long-term margin expansion as residential gas consumption increases.
  • Improved gas supply security, especially during peak demand periods.

Key Financial Insights

China Gas

CR Gas

ENN Energy

Financial Performance Overview

Sector Performance (1m, 6m, 12m)

China Gas Financial Summary

• Balance Sheet:

  • Total assets increase from HK$53,533 million in 2016 to HK$91,707 million in 2020E.
  • Total liabilities rise from HK$32,569 million to HK$45,998 million over the same period.
  • Total equity grows from HK$20,964 million to HK$45,709 million, with BVPS increasing from HK$3.67 to HK$6.40.

• Cashflow Statement:

  • Net cash from operations increases from HK$5,862 million in 2016 to HK$9,560 million in 2020E.
  • Net cash from investments decreases over time, with negative values in 2018E and 2019E.
  • Net cash from financing fluctuates, with negative values in 2018E and 2019E.

• Profit & Loss Statement:

  • Turnover increases significantly from HK$29,497 million in 2016 to HK$69,724 million in 2020E.
  • Gross profit rises from HK$7,214 million to HK$17,435 million.
  • Pre-tax profit increases from HK$3,718 million to HK$13,560 million.
  • Net profit grows from HK$2,273 million to HK$9,386 million.

• Financial Ratios:

  • EBITDA margin declines slightly from 19.0% to 18.7%.
  • ROE increases from 12.5% to 25.2%.
  • Net debt/equity decreases from 80.3% to 47.0%.
  • Dividend payout increases from 25.7% to 30.0%.

CR Gas Financial Summary

• Balance Sheet:

  • Total assets increase from HK$59,675 million in 2016 to HK$90,403 million in 2020E.
  • Total liabilities grow from HK$35,970 million to HK$49,478 million.
  • Total equity increases from HK$23,705 million to HK$40,925 million, with BVPS rising from HK$7.99 to HK$13.87.

• Cashflow Statement:

  • Net cash from operations increases from HK$7,365 million in 2016 to HK$9,380 million in 2020E.
  • Net cash from investments fluctuates, with negative values in 2018E and 2019E.
  • Net cash from financing decreases from HK$-5,232 million in 2016 to HK$-2,812 million in 2020E.

• Profit & Loss Statement:

  • Turnover increases from HK$32,916 million in 2016 to HK$62,066 million in 2020E.
  • Gross profit rises from HK$11,184 million to HK$16,421 million.
  • Pre-tax profit increases from HK$6,189 million to HK$9,518 million.
  • Net profit grows from HK$3,289 million to HK$5,193 million.

• Financial Ratios:

  • EBITDA margin declines from 20.0% to 16.8%.
  • ROE remains relatively stable, from 18.9% to 17.7%.
  • Net debt/equity decreases from 11.0% to 3.4%.
  • Dividend payout increases from 29.8% to 39.3%.

ENN Energy Financial Summary

• Balance Sheet:

  • Total assets increase from RMB51,381 million in 2016 to RMB77,804 million in 2020E.
  • Total liabilities grow from RMB33,527 million to RMB46,515 million.
  • Total equity increases from RMB17,854 million to RMB31,290 million, with BVPS rising from RMB3.67 to RMB6.40.

• Cashflow Statement:

  • Net cash from operations increases from RMB5,862 million in 2016 to RMB9,560 million in 2020E.
  • Net cash from investments fluctuates, with negative values in 2018E and 2019E.
  • Net cash from financing decreases from HK$-5,232 million in 2016 to HK$-2,812 million in 2020E.

• Profit & Loss Statement:

  • Turnover increases from RMB29,497 million in 2016 to RMB69,724 million in 2020E.
  • Gross profit rises from RMB7,214 million to RMB17,435 million.
  • Pre-tax profit increases from RMB3,718 million to RMB13,560 million.
  • Net profit grows from RMB2,273 million to RMB9,386 million.

• Financial Ratios:

  • EBITDA margin declines slightly from 19.0% to 18.7%.
  • ROE increases from 12.5% to 25.2%.
  • Net debt/equity decreases from 80.3% to 47.0%.
  • Dividend payout increases from 25.7% to 30.0%.

Conclusion

The gas sector reform is a significant step towards liberalization, offering a win-win scenario for gas operators and more efficient resource allocation. While there may be a short-term squeeze on margins for city gas operators, the long-term outlook is positive due to increased residential consumption and improved pricing mechanisms. Financial performance across the sector shows growth in turnover, gross profit, and net profit, with increasing ROE and improving financial leverage. The report recommends a positive outlook for the gas sector, with a focus on the long-term benefits of the reforms.