20180905-招商证券_香港_-Gas_sector__1H18_results_overview_9页_1mb

Industry Report Summary: Gas Sector

Core Content

The gas sector in Hong Kong has shown strong performance in the first half of 2018 (1H18), with companies beating forecasts due to increased gas sales volume and improved sales margins. The report highlights the outlook for continued strong growth in 2018, with less margin pressure expected in the upcoming winter season compared to the previous year. The analysis also provides investment recommendations and key financial metrics for major players in the sector.

Main Points

• Strong 1H18 Results: Gas companies, including CR Gas and ENN Energy, exceeded expectations in 1H18, driven by increased sales volume and margin recovery.
• Continued Growth in 2H18: The report anticipates strong sales volume growth in the second half of 2018, with a focus on the coal-to-gas conversion demand.
• Margin Pressure Reduction: Companies like CR Gas and ENN Energy have taken measures to secure gas supply and increase storage, reducing potential margin pressure in the winter season.
• Investment Preference: China Gas (384 HK) and ENN Energy (2688 HK) are recommended over CR Gas (1193 HK) due to their higher exposure in Northern China, better cost advantages, and more diversified business development.
• Valuation: China Gas and ENN Energy are trading at discounts to their 5-year historical averages, making them attractive investment opportunities.
• Recommendations: The report recommends accumulating shares in China Gas and ENN Energy during recent price corrections and maintains a "BUY" rating for both.

Key Information

• Gas Sales Volume Growth: 6 gas companies saw a 18-23% YoY increase in gas sales volume in 1H18, outperforming the national average of 17.5%.
• Margin Recovery: Gas sales dollar margin rebounded by RMB0.02-0.1/cu m HoH in 1H18, thanks to cost pass-through to end users.
• Valuation Metrics:
  • China Gas: Trading at 14.1x FY20E P/E, 8% discount to its 5-year average.
  • ENN Energy: Trading at 14.1x FY20E P/E, near its 5-year average.
  • CR Gas: Trading at 16.2x FY20E P/E, 10% above its 5-year average.
• Target Prices:
  • China Gas: HK$37.0 (BUY).
  • ENN Energy: HK$88.0 (BUY).
  • CR Gas: HK$35.7 (NEUTRAL).
• Upside and Downside Risks:
  • Upside: Stronger gas demand, faster development in rural gas connection and VAS businesses.
  • Downside: Higher execution risk in rural connection, lower-than-expected gas demand, and inability to pass through cost hikes to end users.

Financial Highlights

China Gas (384 HK)

• EPS Growth: Recurrent EPS CAGR of 20% over 2019-21E.
• P/E Ratio: 14.1x FY20E P/E, near 5-year historical average.
• Dividend Yield: 1.8% (2018E) and 2.1% (2019E).
• ROE: 23.1% (2018E) and 23.6% (2019E).
• P/B Ratio: 4.4x (2018E) and 3.6x (2019E).

ENN Energy (2688 HK)

• EPS Growth: Recurrent EPS CAGR of 15% over 2018-20E.
• P/E Ratio: 14.1x FY20E P/E, near 5-year historical average.
• Dividend Yield: 1.8% (2018E) and 2.3% (2019E).
• ROE: 23.3% (2018E) and 22.8% (2019E).
• P/B Ratio: 3.5x (2018E) and 3.0x (2019E).

CR Gas (1193 HK)

• EPS Growth: Recurrent EPS CAGR of 13% over 2018-20E.
• P/E Ratio: 16.2x FY20E P/E, 10% above 5-year average.
• Dividend Yield: 1.8% (2018E) and 2.2% (2019E).
• ROE: 19.1% (2018E) and 19.3% (2019E).
• P/B Ratio: 3.3x (2018E) and 2.9x (2019E).

Sector Performance

• 1H18 Growth: Strong performance in gas sales volume and margin.
• Valuation: The sector is trading at a 14.1x P/E ratio for 2019E, with a 10.5% upside for the year.
• Comparative Analysis: China Gas and ENN Energy are highlighted for their superior performance and growth potential compared to CR Gas.

Conclusion

The gas sector is poised for continued strong performance, with a focus on Northern China and cost advantages. China Gas and ENN Energy are favored for their growth potential and current valuation, while CR Gas is viewed with caution due to higher margin pressure and less favorable valuation. Investors are advised to consider accumulating shares in the preferred companies during the current price correction.