20140326-Maybank_KERPL-More_upside_in_the_pipeline__51页_1mb

报告摘要

China Gas Utilities Summary

Core Content

The report provides an analysis of the Chinese city gas distribution sector, highlighting its defensive nature and robust growth potential. The sector is expected to benefit from government policies promoting the use of cleaner energy to meet rising power demand. The report also outlines the key factors influencing the sector, including infrastructure development, pricing mechanisms, and the role of vehicle gas sales in driving growth.

Main Views

Sector Outlook: The sector is rated Overweight, with a forecasted CAGR of 20% in natural gas consumption from 2012 to 2015. Despite stretched valuations, the strong earnings growth potential justifies the forward PE.
Earnings Growth: The report forecasts an attractive 20% YoY earnings growth for the sector in 2014.
Price Adjustments: In mid-2013, the NDRC raised city gate prices for natural gas, excluding residential users. The new two-tier pricing mechanism aims to support infrastructure development while managing margin risks.
Vehicle Gas Sales: The growth in vehicle gas sales is seen as a key driver of the sector, with CNG and LNG vehicles offering significant cost savings and short payback periods.
Infrastructure Development: The report highlights the importance of new pipelines and LNG-receiving terminals in increasing gas supply and supporting growth. The pipeline from Myanmar to China is expected to be a major growth catalyst.
Company Performance: The report recommends China Gas and ENN Energy as BUY picks due to their strong exposure to the under-penetrated vehicle gas market and new infrastructure. CR Gas and Towngas China are rated HOLD.

Key Information

Sector Growth

Natural gas consumption in China is projected to grow at a CAGR of 20% from 2012 to 2015.
By 2015, domestic production is expected to reach 134bcm, while consumption will be 242bcm, resulting in a 108bcm import dependency.
The 12th Five-Year Plan aims for natural gas consumption to reach 230bcm by 2015, up from 133bcm in 2012.

Pricing and Margin Management

The city gate price increased by 15% from CNY1.69/cubic metre to CNY1.95/cubic metre.
Pass-through to commercial and industrial (C&I) customers is generally successful, helping to offset margin risks.
CNG retail price is estimated at CNY3.8/cubic metre, while LNG retail price is CNY4.5/cubic metre.

Vehicle Gas Sales

CNG vehicles offer a 20% cost saving compared to diesel and a 36% cost saving compared to gasoline.
The payback period for CNG taxi conversion is 2 months, while for LNG trucks it is 12 months.
China had 1.6 million natural gas vehicles by the end of 2012, representing 6.6% of global total but only 1.13% of total vehicles in China.

Infrastructure Development

New pipelines and LNG terminals are expected to increase gas supply and reduce bottlenecks.
The Myanmar-China pipeline (annual capacity: 12bcm) is highlighted as a key infrastructure project with significant growth potential.
Planned/under construction projects are expected to add 95.5bcm of capacity by 2015.

Stock Picks

Stock Name	Bloomberg Code	Market Cap (USDm)	Rating	Target Price (HKD)	Price (HKD)	Upside (%)	P/E (x) 2014E	P/B (x) 2014E	EPS Growth % 2014E	ROE (%) 2014E
ENN Energy	2688 HK	7,181	Buy	60.00	51.45	17%	19.1	3.6	21%	19%
China Gas	384 HK	7,619	Buy	15.00	11.84	27%	18.2	3.1	22%	17%
CR Gas	1193 HK	7,052	Hold	24.00	24.60	-2%	20.3	3.2	24%	16%
Towngas China	1083 HK	3,183	Hold	9.50	9.45	1%	19.2	1.8	15%	9%

Growth Potential

Vehicle gas sales are expected to be the sweet spot for growth, with a strong focus on CNG.
Companies with a track record in CNG vehicle gas and exposure to new pipelines and terminals are favored.
The payback period for CNG and LNG vehicles is short, making them attractive for both operators and end-users.

Catalysts for Growth

Infrastructure Development: More pipelines and LNG terminals will increase gas supply.
M&A Activity: Consolidation in the fragmented industry could drive growth.
Strategic Cooperation: Collaboration between downstream operators and mid/upstream companies may unlock new opportunities.

Conclusion

The Chinese city gas distribution sector is expected to benefit from long-term structural growth due to government support for cleaner energy. Despite some margin pressures, the ability to pass on costs to C&I customers and the growth in vehicle gas sales provide a strong upside. Companies with exposure to new infrastructure and vehicle gas markets, such as China Gas and ENN Energy, are highlighted as top picks.

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