2025-05-20-Bernstein-亚太地区天然气分销商中国燃气公用事业缓慢发展_将华润燃气评级下调至跑平大盘_37页_1mb

Asia-Pacific Gas Distributors Summary

Core Content

This report provides an analysis of the performance and outlook for China's gas utility sector in 2025 and beyond. It outlines the challenges and opportunities facing the industry, including the impact of U.S. tariffs, the slowdown in the property market, and the broader economic environment. The report also evaluates the financial performance and future growth prospects of key players in the sector, such as ENN, Kunlun, China Gas, CR Gas, and Towngas, and updates their investment ratings and price targets accordingly.

Main Points

• 2024 Performance: Gas distributors reported retail gas sales growth of 3–5%, but this was hampered by a warm winter. Margins improved due to residential price hikes and cost pass-through mechanisms, with a 60–80% cost pass-through rate.

• 2025 Outlook:

  • Earnings growth is expected to be subdued, with most companies targeting similar volume growth to 2024.
  • U.S. tariffs are expected to reduce China's GDP growth by 1–2%, impacting gas demand and prices.
  • New connections are expected to decline by 10–20% year-over-year, though this is less material to earnings than in the past.
  • Value-added services (VAS) and integrated energy (IE) are emerging as new growth engines, with 15–20% segmental income growth over the next three years.
  • Kunlun stands out with strong growth in Western China.

• 2026 Outlook:

  • Gas demand is expected to accelerate due to the easing of global gas supply constraints, leading to lower gas prices.
  • A 7–8% CAGR is anticipated for gas demand over the next three years.
  • LNG supply growth, a resolution of the Russia-Ukraine conflict, and potential trade agreements with the U.S. could further benefit the sector.

• Rating Changes:

  • CR Gas is downgraded from Outperform to Market-Perform, with a price target of HKD24.
  • ENN and Kunlun are rated Outperform, while China Gas and Towngas are rated Market-Perform.
  • CR Gas is expected to have 5.7% earnings growth in 2025, which is below ENN (14%) and Kunlun (11%).
  • The connections fee business accounts for 23% of CR Gas's profit, and is expected to limit earnings growth in 2025.

• Valuation and P/E Ratios:

  • The sector is currently trading at a forward P/E ratio of 7–9x, which is undemanding.
  • ENN and Kunlun are trading at 9x P/E, with double-digit EPS growth.
  • CR Gas is at 11.5x P/E, with lower growth expectations and a dividend yield of 4.2%, the lowest among the sector.

Key Information

• Gas Demand Growth:

  • 2024: 8% y-o-y, driven by new energy manufacturing and power generation.
  • 2025: Revised to 4% due to U.S. tariffs.
  • 2026: Expected to accelerate to 8% as gas prices fall and supply increases.

• Earnings Growth:

  • 2025: Expected to be low-single digit.
  • ENN: 13.8% EPS growth.
  • Kunlun: 10.6% EPS growth.
  • CR Gas: 5.7% EPS growth.
  • China Gas: 5.6% EPS growth.
  • Towngas: 0.0% EPS growth.

• Margin Outlook:

  • 2024: Gross dollar margins improved by ~5% due to residential price hikes and cost pass-through.
  • 2025: Moderate margin improvement expected, as cost pass-through completion rate is 60–80%.
  • ENN and Kunlun are expected to have the highest margin potential, due to high-quality customers and greater exposure to residential gas.

• New Connections:

  • 2024: New completions declined by 16% y-o-y.
  • 2025: Expected to decline by 10–20% y-o-y.
  • VAS and IE are expected to drive 15–20% income growth over the next three years.

• Investment Implications:

  • ENN and Kunlun are preferred due to strong FCF yield, dividend yield, and clearer growth prospects.
  • CR Gas faces downside risks due to U.S. tariffs and lower earnings growth.
  • China Gas and Towngas are rated Market-Perform, with moderate growth and lower valuations.

Summary Table

Conclusion

The China gas distribution sector faces moderate growth in 2025 due to economic slowdown and U.S. tariffs, but acceleration is expected in 2026 with lower gas prices and increased supply. ENN and Kunlun are highlighted as the top performers with strong EPS growth and favorable valuations, while CR Gas is downgraded due to weaker-than-expected performance and limited earnings growth. The sector as a whole remains undervalued, but more patience is required as the impact of supply constraints and economic conditions is expected to ease in the medium term.