Investment Rating - The report maintains a "Buy" rating for Hong Kong and China Gas Company Limited [1] Core Views - The company's core profit is steadily recovering, and growth in green energy is expected [1] - The company reported a total revenue of HKD 55.473 billion for 2024, a decrease of 2.6% year-on-year, while the attributable net profit was HKD 5.712 billion, down 5.9% [5] - The core profit for the year was HKD 59.55 billion, reflecting a year-on-year increase of 5.1%, aligning with expectations [5] - The company plans to distribute a final dividend of HKD 0.23 per share, resulting in a total dividend of HKD 0.35 per share for the year, yielding a dividend rate of 5.31% based on the closing price on March 19 [5] Financial Data and Profit Forecast - Revenue (in million HKD) is projected as follows: - 2023: 56,971 - 2024: 55,473 - 2025E: 55,525 - 2026E: 57,637 - 2027E: 59,285 - Year-on-year growth rates for revenue are expected to be: - 2023: -6.5% - 2024: -2.6% - 2025E: 0.1% - 2026E: 3.8% - 2027E: 1.5% [2] - Attributable net profit (in million HKD) is forecasted as: - 2023: 6,070 - 2024: 5,712 - 2025E: 6,131 - 2026E: 6,543 - 2027E: 6,911 - Year-on-year growth rates for net profit are: - 2023: 15.7% - 2024: -5.9% - 2025E: 7.3% - 2026E: 6.7% - 2027E: 5.6% [2][6] Business Performance Insights - The company has increased gas prices in Hong Kong, leading to stable sales volume and improved profitability, with a slight increase in gas sales volume of 0.1% in 2024 [5] - The mainland business is expected to see both volume and profit growth, with total gas sales projected at 36.36 billion cubic meters in 2025, a year-on-year increase of 4.8% [5] - The company’s renewable energy business is experiencing significant profit growth, with solar power generation expected to increase by 95% to 1.83 billion kWh in 2024 [5] - The company’s net profit from extended businesses reached HKD 470 million, with contributions from both Hong Kong and mainland markets [5] Valuation Metrics - The current stock price corresponds to a price-to-earnings (PE) ratio of 20.1 for 2025, 18.8 for 2026, and 17.8 for 2027 [5] - The company maintains a stable dividend policy, with a focus on steady growth across its various business segments [5]

Financial Performance - The group's total revenue for 2024 was HKD 55.473 billion, a decrease of 2.6% from HKD 56.971 billion in 2023[7] - Core profit increased by 5% to HKD 5.955 billion, compared to HKD 5.664 billion in the previous year[7] - The group's attributable profit before property revaluation was HKD 5.668 billion, up 2% from HKD 5.570 billion[12] - Profit before tax for the year was HKD 8,490.4 million, a decline of 7.5% compared to HKD 9,174.4 million in 2023[49] - Net profit for the year was HKD 6,761.2 million, down 5.7% from HKD 7,171.3 million in the prior year[51] - Total comprehensive income for the year was HKD 4,571.7 million, a decrease of 16.6% from HKD 5,481.9 million in 2023[51] - Basic earnings per share decreased to HKD 30.6, down from HKD 32.5 in 2023, representing a decline of 5.8%[49] - Adjusted EBITDA for 2024 was HKD 11,823.8 million, compared to HKD 11,914.8 million in 2023, indicating a decrease of 0.8%[79] - The basic earnings attributable to shareholders for 2024 were HKD 5,711.5 million, down from HKD 6,070.1 million in 2023, reflecting a decrease of 5.9%[91] Revenue Breakdown - Gas sales revenue, including fuel adjustment fees, for 2024 was HKD 41,525.4 million, down from HKD 42,518.4 million in 2023, reflecting a decrease of about 2.3%[75] - The group reported a total of HKD 1,863.5 million in renewable energy business revenue for 2024, significantly up from HKD 1,056.3 million in 2023, indicating an increase of approximately 76.2%[75] - The revenue from the gas, water, and renewable energy segment in Hong Kong for 2024 was HKD 10,688.0 million, up from HKD 10,402.8 million in 2023, an increase of 2.8%[79] - The revenue from the green energy segment in 2024 was HKD 730.1 million, a decrease from HKD 2,447.3 million in 2023, indicating a significant decline of 70.1%[79] - The total revenue from other sales in 2024 was HKD 3,999.7 million, compared to HKD 4,088.9 million in 2023, reflecting a decline of approximately 2.2%[75] Operating Expenses and Liabilities - Total operating expenses decreased to HKD 47,294.9 million, down 3.2% from HKD 48,833.8 million in the previous year[49] - The total current liabilities reported for December 31, 2023, were HKD 39,424.5 million, which increased to HKD 41,376.8 million after reclassification adjustments[68] - The total non-current liabilities reported for December 31, 2023, were HKD 50,817.2 million, which decreased to HKD 48,864.9 million after reclassification adjustments[68] - The group's total liabilities decreased to HKD 89,878.1 million from HKD 90,241.7 million in the previous year[55] Assets and Equity - Total assets as of December 31, 2024, amounted to HKD 158,268.6 million, a decrease from HKD 161,977.6 million in 2023, reflecting a reduction of 2.1%[82] - Non-current assets totaled HKD 133,928.0 million, a slight decrease from HKD 135,343.8 million in the previous year[53] - The company's total equity as of December 31, 2024, was HKD 68,333.5 million, down from HKD 71,018.7 million in 2023[55] Dividends and Shareholder Information - The board proposed a final dividend of HKD 0.23 per share, totaling HKD 0.35 per share for the year including the interim dividend[12] - The company declared an interim dividend of HKD 0.12 per share and a proposed final dividend of HKD 0.23 per share, maintaining the same levels as in 2023[90] - The annual general meeting is scheduled for June 4, 2025, with further details to be published around April 24, 2025[110] Renewable Energy Initiatives - The renewable energy business profit increased fivefold, significantly contributing to the core profit growth of 34.5% to HKD 1.601 billion[3] - The group operates over 1,000 renewable energy projects across 24 provincial cities in mainland China, with distributed photovoltaic business grid-connected capacity reaching 2.3 GW and generating 1.83 billion kWh[17] - The green methanol production plant in Inner Mongolia is expected to increase annual capacity to 150,000 tons by the end of 2025, with plans to expand to 300,000 tons by 2028[20] - The green hydrogen project in Tseung Kwan O is the first of its kind in Hong Kong, utilizing landfill gas to produce green hydrogen[20] Strategic Developments - The group plans to launch a sustainable aviation fuel (SAF) plant in Malaysia by Q3 2025, with an annual capacity of 300,000 tons[5] - The group is actively participating in the development of hydrogen energy applications as outlined by the Hong Kong government[5] - A cooperation framework agreement was signed with Fuan Energy Group to jointly establish an investment platform, planning to invest CNY 10 billion to develop a green methanol production capacity of 1 million tons[20] Customer and Market Insights - The number of residential gas customers in Hong Kong reached 4.4 million, contributing to strong growth potential[3] - In Hong Kong, gas sales volume slightly decreased by 1.4% due to changes in consumer behavior, while hotel-related gas sales increased by 6.6% driven by tourism recovery[33] - The group expects stable growth in gas sales due to the recovery of the tourism industry and population influx from initiatives like "Talent Pass"[24]

Investment Rating - The report initiates coverage with a "Buy" rating for Hong Kong and China Gas (00003) [1] Core Views - The company is a leading national city gas enterprise with a stable gas sales structure and high-quality city gas projects [1] - The Hong Kong business has stable profitability with potential for further price increases [1] - The mainland business is experiencing steady growth in gas sales volume and improving gross margins [1] - The company is diversifying into renewable energy and sustainable energy sectors, which are expected to drive future growth [1] Business Overview Hong Kong Business - The Hong Kong gas market is mature with stable user growth, covering 75% of the market [1] - Residential and commercial gas sales dominate, with residential gas sales accounting for 54% and commercial for 40% in 2023 [1] - The company has strong pricing autonomy in Hong Kong, with recent price adjustments in August 2024 [1] - Gas sales volume in Hong Kong is expected to increase by 7% by the end of 2028 compared to 2023 [1] Mainland Business - The company operates 321 city gas projects across 29 provinces in mainland China, with a user base exceeding 40 million [1] - Gas sales volume in mainland China grew at a CAGR of 8.56% from 2018 to 2023 [1] - Industrial gas sales account for 45% of total gas sales, followed by residential (22%) and commercial (14%) [1] - The gross margin for gas sales in mainland China improved to 0.47 yuan/m³ in 1H24, up by 0.05 yuan/m³ year-on-year [1] Diversified Business - The company is expanding into renewable energy, including distributed photovoltaic and energy-carbon services [1] - In 1H24, the renewable energy business contributed 1.9 billion HKD in profit, with Hong Kong and mainland businesses contributing 1.4 billion HKD and 0.5 billion HKD respectively [1] - The company is also exploring sustainable aviation fuel, green methanol, and hydrogenated vegetable oil production [1] Financial Projections - The report forecasts net profit attributable to shareholders of 6.207 billion HKD, 6.713 billion HKD, and 7.094 billion HKD for 2024, 2025, and 2026 respectively [1] - EPS is projected to be 0.33 HKD, 0.36 HKD, and 0.38 HKD for the same periods [1] - The target price is set at 7.77 HKD, representing a 31.7% upside from the current price [1] Valuation - The company's valuation is supported by its stable dividend policy, with a long-standing dividend of 0.35 HKD per share annually [1] - The DCF valuation model suggests significant upside potential as the company's cash flow grows and the city gas industry stabilizes [1]

Investment Rating - The report maintains an "Outperform" rating for the company with a current price of HK$6.20 and a target price of HK$6.66 [3][6]. Core Insights - The company has successfully enhanced operational efficiency through business restructuring and cost-saving measures, achieving a total revenue of HKD 27.496 billion in 2024H1, a decrease of 5.76% year-on-year, while core profit increased by 2.21% to HKD 3.186 billion [8][12]. - The company's strategic focus on green energy is showing promise, with significant growth in its renewable energy initiatives, including a 51% year-on-year increase in the production of SAF and HVO [11][12]. Summary by Sections Financial Performance - The company reported a total revenue of HKD 56.971 billion for Dec-23A, with projections of HKD 59.777 billion for Dec-24E, HKD 62.446 billion for Dec-25E, and HKD 64.947 billion for Dec-26E [4][12]. - The attributable net profit for Dec-23A was HKD 6.070 billion, with estimates of HKD 6.467 billion for Dec-24E, HKD 6.690 billion for Dec-25E, and HKD 6.897 billion for Dec-26E [4][12]. Business Segments - The Hong Kong gas sales volume remained flat year-on-year at 14,932 million megajoules, while the mainland urban gas business saw a 6.76% increase in sales volume [5][10]. - The company is actively developing hydrogen energy and green methanol businesses, with a green hydrogen pilot project expected to produce 330 kilograms of hydrogen daily by 2025 [5][9]. Growth Opportunities - The mainland business has shown significant growth, with urban gas sales volume reaching 18.63 billion cubic meters, a year-on-year increase of 6.76% [10]. - The company is focusing on high-quality industrial customers and energy management for public institutions, achieving a 3.13% increase in industrial gas sales and a 9.29% increase in commercial gas sales [10]. Green Energy Initiatives - The company's EcoCeres produced 176,000 tons of SAF and HVO in the first half of the year, with future green methanol production capacity expected to reach 120,000 tons annually [11]. - The cumulative photovoltaic grid-connected scale reached 2.1GW, with power generation increasing by 1.4 times year-on-year to 6.8 billion kWh [11].

Financial Performance - For the six months ended June 30, 2024, the core profit was HKD 3.186 billion, an increase of HKD 69 million or 2% compared to the same period last year[9]. - The net profit attributable to shareholders for the same period was HKD 3.040 billion, a decrease of HKD 574 million or 16% year-on-year[9]. - The total revenue for the first half of 2024 was HKD 27.496 billion, down from HKD 29.178 billion in the previous year[10]. - The basic earnings per share for the first half of 2024 were HKD 16.3 cents, down from HKD 19.4 cents in the same period last year[10]. - The company declared an interim dividend of HKD 0.12 per share, payable to shareholders on September 11, 2024[11]. - The company achieved a pre-tax profit of HKD 4,574.2 million, down 19.6% from HKD 5,687.4 million in the previous year[22]. - The total comprehensive income for the period was HKD 1,775.0 million, an increase from HKD 1,595.6 million in the previous year[23]. - The company reported a net profit of HKD 3,561.4 million for the six months ended June 30, 2024, compared to HKD 4,319.5 million in 2023, indicating a decline of approximately 17.5%[44]. - The total tax expense for the six months ended June 30, 2024, was HKD 903.0 million, compared to HKD 1,197.9 million in 2023[54]. Customer and Market Growth - The number of Hong Kong customers as of June 30, 2024, was approximately 2.027 million, an increase of 7,678 customers compared to the end of 2023[10]. - The number of gas customers in mainland cities reached 41.394 million, an increase from 38.564 million in the previous year[10]. - The number of gas customers increased to over 41.39 million, representing a growth of 7.3% year-on-year[13]. - The company expects stable gas sales in Hong Kong for 2024, supported by recent tariff adjustments[21]. - The company anticipates continued growth in gas and natural gas operations in mainland cities in the second half of the year, contributing to profit improvement[21]. Revenue and Sales - The total gas sales volume of the urban gas business reached approximately 18.6 billion cubic meters, an increase of 7% compared to the same period last year[13]. - Gas sales, including fuel adjustment fees, amounted to HKD 21,296.3 million for the first half of 2024, down from HKD 21,689.3 million in the previous year, a decrease of approximately 1.8%[42]. - Revenue from external customers in Hong Kong for the six months ended June 30, 2024, was HKD 6,170.8 million, compared to HKD 6,391.5 million in 2023, a decrease of about 3.4%[48]. - Revenue from external customers in Mainland China for the same period was HKD 21,325.4 million, down from HKD 22,786.1 million in 2023, representing a decline of approximately 6.4%[48]. Operational Efficiency - The company has integrated its mainland and Hong Kong retail businesses to enhance synergies and drive growth in smart kitchen, insurance, and home safety services[17]. - The group employed 2,117 staff in the Hong Kong gas business as of June 30, 2024, serving 2,027,334 customers, resulting in an efficiency of 958 customers per employee, a slight increase from the previous year[86]. - The group’s human resources cost for the first half of the year was HKD 658 million, an increase of HKD 39 million compared to the same period last year[86]. Investments and Projects - The company is developing Hong Kong's first "green hydrogen" pilot project, expected to produce about 330 kg of hydrogen daily by 2025[12]. - The company plans to invest in green hydrogen production from landfill gas, aiming to enhance sustainable fuel supply and support low-carbon transformation[21]. - The company has accumulated contracts for 3.3 GW of renewable energy projects, with 2.1 GW connected to the grid as of June 30, 2024[15]. - The green methanol production plant in Inner Mongolia is expected to increase its capacity to 120,000 tons per year in the coming years[18]. Financial Position and Liabilities - As of June 30, 2024, total assets minus current liabilities amounted to HKD 115,937.4 million, a decrease from HKD 119,883.6 million as of December 31, 2023, representing a decline of approximately 3.1%[25]. - Total equity as of June 30, 2024, was HKD 67,999.3 million, down from HKD 71,018.7 million at the beginning of the year, marking a decrease of about 4.5%[27]. - The total liabilities as of June 30, 2024, were HKD 47,938.1 million, slightly down from HKD 48,864.9 million as of December 31, 2023[25]. - The group’s net current borrowings as of June 30, 2024, were HKD 134.73 billion, an increase from HKD 98.73 billion as of December 31, 2023[81]. - The group has sufficient and stable funding sources, including bank financing agreements and bond issuances, to meet future capital investment and working capital needs[81]. Corporate Governance and Management - The company has been recognized as one of the top 1% of Chinese enterprises in global ESG ratings, reflecting its commitment to social responsibility and governance[19]. - The group has complied with all corporate governance codes as per the Hong Kong Stock Exchange Listing Rules as of June 30, 2024[87]. - Mr. Chen Yinglong was appointed as the Executive Director and Chief Investment Officer of the company on June 25, 2024[92]. Shareholder Information - As of June 30, 2024, Dr. Li Ka-shing holds 7,748,692,715 shares, representing 41.53% of the company's total issued shares[99]. - Timpani Investments Limited holds 5,989,193,083 shares, accounting for 32.10% of the company's total issued shares[99]. - Macrostar Investment Limited holds 1,759,499,632 shares, representing 9.43% of the company's total issued shares[99]. - The company has granted stock options for EcoCeres, Inc. shares to certain directors, with 31,818 shares available at an exercise price of $57.00[96]. - The company has also granted stock options for Honghua Smart Energy shares, with 1,800,000 shares available at an exercise price of HKD 3.40[94].

Investment Rating - The report does not explicitly state an investment rating for the company Core Insights - The company's core profit for the first half of 2024 is HKD 3.186 billion, a 2% increase year-on-year, despite total revenue decreasing by 5.76% to HKD 27.496 billion [3] - The urban gas business in mainland China shows steady growth, with gas sales volume increasing by 7% to 18.6 billion cubic meters and the average gas price margin rising to RMB 0.5 per cubic meter [4] - Green energy initiatives, including hydrogen, sustainable aviation fuel, and green methanol, are highlighted as new growth areas for the company [6] Financial Performance Summary - Total revenue (in million HKD) for the years 2020 to 2024H1: 40,927, 53,564, 60,953, 56,971, and 27,496 respectively, with a growth rate of -1.15% for 2024H1 [2] - Net profit attributable to shareholders (in million HKD) for the same period: 6,007, 5,017, 5,248, 6,070, and 3,040 respectively, with a growth rate of 63.2% for 2024H1 [2] - Earnings per share (EPS) for 2024H1 is HKD 0.163, with a mid-year dividend of HKD 0.12 [3] Cash Flow and Capital Expenditure - The company expects total cash inflow of approximately HKD 9 billion for 2024, with HKD 7.5 billion coming from gas operations and asset sales contributing over HKD 1 billion [5] - The management emphasizes controlling capital expenditure and maintaining a stable debt ratio without increasing liabilities to boost dividends [5]

Financial Performance - For the first half of 2024, the core profit of the group increased to HKD 3.186 billion, a rise of 2% compared to the same period last year[3]. - The group’s business core profit for the first half of 2024 was HKD 3.186 billion, while the net profit attributable to shareholders decreased by 16% to HKD 3.040 billion[3]. - The group reported a revenue of HKD 27,496.2 million for the first half of 2024, a decrease of 5.8% compared to HKD 29,177.6 million in the same period of 2023[18]. - The group's profit before tax for the first half of 2024 was HKD 4,574.2 million, down 19.6% from HKD 5,687.4 million in the first half of 2023[18]. - The net profit for the first half of 2024 was HKD 3,561.4 million, a decline of 17.6% compared to HKD 4,319.5 million in the same period of 2023[19]. - The total comprehensive income for the first half of 2024 was HKD 1,775.0 million, an increase from HKD 1,595.6 million in the same period of 2023[19]. - The adjusted EBITDA for the group was HKD 6,211.9 million for the six months ended June 30, 2024, compared to HKD 6,335.5 million for the same period in 2023, indicating a slight decrease[37]. - The group reported a net profit of HKD 3,561.4 million for the period, compared to HKD 4,574.2 million for the same period in 2023, reflecting a decrease of 22.1%[37]. Revenue and Sales - The total gas sales volume in mainland cities reached 18.625 billion cubic meters, representing a 7% increase year-on-year[4]. - The group’s Hong Kong gas sales volume was 14,932 million MJ, remaining stable compared to the previous year[7]. - Revenue from gas sales, excluding fuel adjustment fees, was HKD 20,755.9 million for the six months ended June 30, 2024, a decrease of 1.7% compared to HKD 21,115.0 million for the same period in 2023[35]. - The total revenue for the group for the six months ended June 30, 2024, was HKD 27,496.2 million, down from HKD 29,177.6 million in the same period of 2023, representing a decline of 5.8%[35]. - Revenue from renewable energy business increased to HKD 754.8 million for the six months ended June 30, 2024, compared to HKD 443.3 million in the same period of 2023, representing a growth of 70.1%[35]. - The group’s total revenue from gas installation services was HKD 1,412.9 million for the six months ended June 30, 2024, slightly down from HKD 1,449.8 million in the same period of 2023, a decrease of 2.5%[35]. Dividends and Shareholder Returns - The group announced an interim dividend of HKD 0.12 per share, payable on September 11, 2024[5]. - The group maintained a dividend of HKD 2,239.2 million for the first half of 2024, consistent with the previous year[18]. - The group plans to declare an interim dividend of HKD 0.12 per share for 2024, consistent with the previous year's interim dividend[45]. Business Development and Strategy - The group is focusing on green energy development, particularly in hydrogen, sustainable aviation fuel, and green methanol markets[2]. - The group is actively restructuring its business and optimizing operations to enhance efficiency amid an uncertain economic environment[6]. - The group is developing Hong Kong's first "green hydrogen" pilot project, expected to produce approximately 330 kg of hydrogen daily by 2025[7]. - The group plans to leverage landfill gas conversion into sustainable fuel "green hydrogen" to enhance supply capacity and support low-carbon transformation in Hong Kong[15]. - The group expects continued growth in gas and natural gas businesses in mainland cities in the second half of 2024, contributing to future business development[15]. - The group aims to expand production capacity in SAF and green methanol projects to meet future demand for low-carbon fuels[16]. Financial Position and Assets - The group reported total assets of HKD 134,158.8 million as of June 30, 2024, a slight decrease from HKD 135,343.8 million as of December 31, 2023[20]. - The total assets minus current liabilities stood at HKD 115,937.4 million, down from HKD 119,883.6 million at the end of 2023[21]. - The net assets of the group were HKD 67,999.3 million, compared to HKD 71,018.7 million as of December 31, 2023, reflecting a decrease of approximately 4.3%[21]. - The group's total equity was HKD 67,999.3 million, down from HKD 71,018.7 million, indicating a decline in shareholder equity[21]. - The group reported a current net debt of approximately HKD 18,200 million, which includes borrowings due within one year of approximately HKD 22,100 million[22]. - The group has received a commitment letter from the bank to extend the maturity of certain loans by five years, pending administrative procedures[22]. - The total financial assets measured at fair value as of June 30, 2024, was HKD 4,003.7 million, down from HKD 4,195.4 million at the end of 2023[30]. - The total financial liabilities measured at fair value as of June 30, 2024, was HKD 181.6 million, compared to HKD 208.4 million at the end of 2023[30]. Employee and Labor Costs - As of June 30, 2024, the number of employees in the Hong Kong gas business was 2,117, slightly up from 2,100 in the same period last year, serving a total of 2,027,334 customers, resulting in an efficiency of 958 customers per employee[52]. - The total number of employees across all Hong Kong operations, including telecommunications and engineering contracting, was 2,341 as of June 30, 2024, compared to 2,325 in the same period last year[52]. - The group's related labor costs for the first half of the year were HKD 658 million, an increase of HKD 39 million compared to the same period last year[52]. Financial Risks and Management - The group faces several financial risks, including market risk, credit risk, and liquidity risk, with no changes in risk management policies since year-end[29]. - The group’s financial instruments are classified into three levels based on the observability of inputs used for fair value measurement[29]. - The group’s financial risk management disclosures are not fully included in the interim financial statements and should be read in conjunction with the annual consolidated financial statements[29]. Compliance and Governance - The company has adopted the standard code of conduct for securities trading as per Appendix C3 of the Listing Rules, confirming compliance for the six months ending June 30, 2024[60]. - There were no repurchases, sales, or redemptions of any listed securities by the company or its subsidiaries during the six months ending June 30, 2024, except for details regarding the redemption of perpetual capital securities in February 2024[61].

Investment Rating - The report maintains an **OUTPERFORM** rating for Towngas (3 HK) with a target price of HK$6.39 [3] - The current price is HK$6.30 as of July 25, 2024 [3] - The market capitalization is HK$117.56 billion (US$15.05 billion) [3] Core Views - Towngas has a clear future development strategy with significant breakthroughs in green energy transformation [2] - The company's diversification strategy has been effective, particularly in the mainland urban gas business, which saw an 8% year-on-year growth in 2023 [4] - The green energy transformation has achieved a breakthrough, with the production of SAF and HVO reaching 150,000 tons and 115,000 tons respectively in 2023 [9] - The company's financial performance remains stable, with a 16% year-on-year increase in net profit attributable to shareholders in 2023 [10] Business Growth and Market Expansion - Towngas increased its gas projects in mainland China by 5 to 320 in 2023, with the number of users growing by 2.9 million to 40.19 million [4] - The company's water affairs and environmental businesses have shown stable growth, with innovative attempts such as converting kitchen waste into biogas [4] - The company's green methanol production capacity is expected to reach 120,000 tons, contributing approximately HK$100 million in cash net profit [12] Financial Performance - Despite a 7% year-on-year decrease in total revenue in 2023, Towngas achieved an 11% year-on-year increase in core profit [10] - The company's total assets reached HK$162 billion, with net assets of HK$71.1 billion and cash and bank deposits of HK$9 billion [10] - The company plans to reduce debt by HK$10 billion over the next five years, reflecting its focus on optimizing asset structure and improving capital efficiency [11] Capital Expenditure and Investment Strategy - In 2023, Towngas's capital expenditure was HK$10.2 billion, primarily focused on renewable energy projects, especially photovoltaic investments [11] - The company expects to adjust its capital expenditure to HK$7.1 billion in 2024, with a significant reduction in capital expenditure for Hong Kong China Gas Smart Energy to HK$3.3 billion [11] - The company is actively exploring emerging energy fields such as hydrogen energy, including strategic cooperation with Citybus Group to provide hydrogen refueling station services [12] Profit Forecast and Investment Recommendation - The report forecasts Towngas's main business revenue for FY24-26 to be HK$59.777 billion, HK$62.446 billion, and HK$64.947 billion respectively [13] - The net profit attributable to the parent company is expected to be HK$6.298 billion, HK$6.513 billion, and HK$6.713 billion for the same periods [13] - Based on the DCF model, the target price is expected to be HK$6.39 per share, maintaining the OUTPERFORM rating [13]

Carbon Neutrality and Sustainability Goals - The company has committed to achieving carbon neutrality by 2050 through energy transition and innovation, aiming to reduce greenhouse gas emissions by 10% by 2025 compared to the 2020 baseline[17] - The company aims to reduce the total carbon intensity of gas use by 36% by 2035 compared to 2019, targeting 0.15 kg CO2e/kWh[36] - The company has set a target to reduce greenhouse gas emissions by 10% in its operations by 2025 compared to the 2020 baseline year and to reduce 10 million tons of greenhouse gas emissions annually through measures such as coal-to-gas conversion, photovoltaic power generation, and energy efficiency optimization[83] - The company plans to reduce the total carbon intensity of Hong Kong's gas usage by 36% by 2035 compared to the 2019 baseline year, achieving 0.15 kg of CO2 equivalent per kilowatt-hour[84] Renewable Energy and Green Projects - The company has installed 1.8 gigawatts of photovoltaic capacity across 354 renewable energy projects[14] - The company has processed approximately 1.46 million tons of organic waste by the end of 2023, converting it into bio-natural gas in the Suzhou Industrial Park[14] - The company's carbon intensity in gas production has decreased by 28% compared to the 2005 baseline, reaching 0.549 kg CO2e per unit of gas[19] - The company expects continued growth in renewable energy projects in 2024, with wind and photovoltaic installations playing a crucial role[38] - The renewable energy business achieved profitability in 2023, with 354 projects, an increase of 171 from the previous year[33] - Distributed photovoltaic projects added 1.6 GW in new contracts and 1.2 GW in grid-connected capacity in 2023[33] - The company's organic waste treatment projects processed 1.46 million tons of organic waste in 2023, a 5% increase compared to the previous year[70] - The company has launched the Towngas Smart Operation Platform (TOP) to detect, prevent, and reduce methane leaks, ensuring pipeline safety[85] - The company has incorporated ESG elements into its investment decisions, with 12 related projects approved in December 2023, involving an investment of over RMB 300 million[86] - The company is expanding its sustainable aviation fuel (SAF) production capacity, with a new plant in Malaysia expected to increase annual SAF production to 650,000 tons within two years[107] - The company's innovative waste-to-energy system for Maxim's food factory reduces carbon emissions by 800 tons annually[53] Financial Performance and Metrics - The company's profit attributable to shareholders for 2023 was HK$6.07 billion, a 16% increase from the previous year[25] - The company's revenue for 2023 was HK$56.971 billion, a 7% decrease from the previous year[25] - The company's basic earnings per share for 2023 were HK$0.325, a 16% increase from the previous year[25] - The company's profit attributable to shareholders in 2023 was HKD 1.575 billion, a significant increase of 63.2% compared to the previous year[34] - Revenue for 2023 was HKD 56,971.1 million, a decrease of 6.5% compared to HKD 60,953.4 million in 2022[121] - Net profit attributable to shareholders in 2023 was HKD 6,070.1 million, up 15.7% from HKD 5,247.9 million in 2022[121] - Gas sales volume in 2023 was 27,125 million megajoules, a slight decrease from 27,398 million megajoules in 2022[121] - Total number of customers as of December 31, 2023, was 2,019,656, an increase of 1.2% from 1,995,082 in 2022[121] - Total assets as of December 31, 2023, were HKD 71,018.7 million, down 5.5% from HKD 75,138.7 million in 2022[121] - Earnings per share for 2023 were HKD 0.33, up 17.9% from HKD 0.28 in 2022[121] - Dividend per share for 2023 remained stable at HKD 0.35, consistent with 2022[121] - The company's property, plant, and equipment amounted to HKD 73,416.8 million in 2023, a slight decrease from HKD 74,632.1 million in 2022[121] - The company's investment properties were valued at HKD 1,001.1 million in 2023, up 0.5% from HKD 996.5 million in 2022[121] - The company's intangible assets decreased to HKD 4,463.2 million in 2023 from HKD 5,340.2 million in 2022, a reduction of 16.4%[121] - Customer base increased to 2,019,656 as of December 31, 2023, up by 1.2% from 1,995,082 in 2022[122] - Gas sales volume decreased to 27,125 million megajoules in 2023, down by 1.0% from 27,398 million megajoules in 2022[122] - Revenue for 2023 was HK$56,971.1 million, a decrease of 6.5% from HK$60,953.4 million in 2022[122] - Profit after tax for 2023 was HK$7,171.3 million, an increase of 13.4% from HK$6,324.4 million in 2022[122] - Shareholders' profit attributable for 2023 was HK$6,070.1 million, up by 15.7% from HK$5,247.9 million in 2022[122] - Total assets as of December 31, 2023, were HK$71,018.7 million, a decrease of 5.5% from HK$75,138.7 million in 2022[122] - Earnings per share for 2023 were HK$0.33, up by 17.9% from HK$0.28 in 2022[122] - Dividend per share for 2023 was HK$0.35, consistent with the previous year[122] - The company plans to distribute a final dividend of HK$0.23 per share on June 24, 2024[125] - The company's distributable reserves as of December 31, 2023, amounted to HKD 9.365 billion, compared to HKD 10.862 billion in 2022[127] - Charitable donations for the year totaled approximately HKD 4.1 million, down from HKD 8.6 million in 2022[128] Safety and Operational Efficiency - The company has conducted 1,190,700 regular safety inspections for customers in Hong Kong, with a lost-time injury rate of 0.43 for employees and 0.32 for contractors per million working hours[20] - The company has reduced public gas leak incidents by 15% compared to 2022, with IoT-enabled smart stoves, controllers, and gas meters enhancing home safety[20] - The company introduced "phased array ultrasonic testing" technology to enhance gas supply reliability and completed a horizontal directional drilling project benefiting over 20,000 customers[58] - Gas leakage incidents per 10 km of gas pipeline in Hong Kong decreased by 15% in 2023 compared to 2022[101] - Third-party damage to underground pipelines decreased by 50% in 2023[101] - The company has implemented a comprehensive quality management system to monitor production, storage, and distribution facilities, as well as renewable energy systems[109] - The company has established a smart operation platform for its mainland gas business to optimize safety and operational management[109] - The company uses a SCADA system for precise monitoring and data collection to ensure reliable gas delivery[108] - The company has established a liquefied natural gas storage facility and an underground salt cavern gas storage in Jiangsu Province to optimize gas supply management[108] - The company has diversified its gas supply sources, including natural gas from Australia, naphtha from Southeast Asia and Australia, and biogas from Hong Kong landfills[108] Customer and Community Engagement - The company has provided HKD 24 million in benefits to over 42,000 families through its gas discount program[20] - The company has launched the "Green Flame Energy Scientist Cultivation Program," involving 22 primary schools, and collaborated with B.Duck to host the "Green Flame Future Lab" event, attracting over 10,000 participants[16] - The company received over 5,500 commendation letters in 2023, reflecting strong customer satisfaction[56] - The company donated RMB 1 million to support earthquake relief efforts in Gansu Province[94] - The company provided gas fee discounts totaling HKD 24 million, benefiting over 42,000 households[95] - The company donated HKD 4.1 million to support community activities[96] - The company has donated 10,000 smart controllers and smart gas meters to families in need, enhancing home safety for the elderly and their caregivers[91] - The company provided teaching materials worth over RMB 5 million to more than 50 schools and donated nearly 20,000 books through the "Honghua Light Wind Action" initiative[94] Leadership and Governance - Dr. Lee Ka Kit, aged 60, was appointed as Chairman and Non-Executive Director of the company in May 2019[39] - Dr. Lee Ka Shing, aged 52, was appointed as Chairman and Non-Executive Director of the company in May 2019[40] - Dr. Lee Ka Kit is the Chairman and Managing Director of Henderson Land Development Co., Ltd. and Vice Chairman of Henderson Development Ltd.[39] - Dr. Lee Ka Shing is the Chairman and Managing Director of Henderson Land Development Co., Ltd. and Miramar Hotel and Investment Co., Ltd.[40] - Dr. Lee Ka Kit has been a member of the Standing Committee of the 14th National Committee of the Chinese People's Political Consultative Conference since 2021[39] - Dr. Lee Ka Shing is a member of the 14th Beijing Municipal Committee of the Chinese People's Political Consultative Conference[40] - Dr. Lee Ka Kit holds honorary degrees from the University of Hong Kong and Edinburgh Napier University[39] - Dr. Lee Ka Shing holds honorary fellowships from University College London and Hong Kong Hang Seng University[40] - Dr. Lee Ka Kit is the son of Dr. Lee Shau Kee, the controlling shareholder of the company[39] - Dr. Lee Ka Shing is the son of Dr. Lee Shau Kee and the younger brother of Dr. Lee Ka Kit[40] - The company's executive chairman, Sir Li Ka-shing, has been a director since 1984 and is currently the executive chairman of The Bank of East Asia Limited[42] - Professor Poon Chung-kwong, an independent non-executive director, has been a director since 2009 and is the honorary professor and president of The Hong Kong Polytechnic University[42] - Dr. Cheng Mo-chi, an independent non-executive director, has been a director since January 2019 and is a practicing lawyer with extensive experience in the legal field[42] - Mr. Wong Wai-yee, the executive director, joined the group in 1997 as the financial controller and has been the executive director since June 6, 2022[43] - Mr. Yeung Lui-ming, the executive director and chief financial officer, joined the company in 2023 and was appointed as a director in January 2024[44] - The company's board of directors includes several members with extensive experience in finance, management, and international operations[43][44] - The company has a strong focus on sustainable green energy, as indicated by the presence of a dedicated Sustainable Green Energy Office[45] - The company's operations are divided into various segments, including Hong Kong utility business, mainland utility business, and renewable energy business[45] - The company's leadership team includes individuals with significant experience in investment, operations, and human resources[45] - The company's subsidiaries and associated companies are all publicly listed, indicating a broad and diversified business portfolio[42][43] - The company's vision is to become a leading enterprise in green smart energy, creating a sustainable green energy world[154] - The Board has adopted a Board Independence Policy/Mechanism to ensure independent perspectives and opinions are obtained[155] - The Board has adopted a Board Diversity Policy to enhance the quality of the Board's performance by considering diversity in professional experience, skills, knowledge, cultural and educational background, race, age, and gender[156] - The Board has adopted a Nomination Policy to ensure the Board possesses the skills, experience, and diverse perspectives necessary for the company's business[157] - The Board has adopted a Dividend Policy, typically paying dividends twice a year (interim and final), with the possibility of special dividends when deemed appropriate[159] - The Board currently consists of 2 executive directors and 7 non-executive directors, including 3 independent non-executive directors, to ensure strategies protect shareholders' interests[160] - The company received independence confirmation letters from independent non-executive directors in accordance with Listing Rule 3.13[160] - Mr. Yang Leiming was appointed as an executive director on January 1, 2024, and confirmed his understanding of his responsibilities as a company director[160] - The Board of Directors held four meetings in the fiscal year ending December 31, 2023, with all directors attending all meetings except for one independent non-executive director who attended 3 out of 4 meetings[164] - The Audit and Risk Committee held two meetings in the fiscal year ending December 31, 2023, with all members attending both meetings[170] - The company has not implemented any share option or share award plans, and directors' remuneration is determined based on their roles and responsibilities[171] - The Audit and Risk Committee reviewed the 2022 annual and 2023 interim financial reports, recommended the reappointment of PricewaterhouseCoopers as the external auditor, and reviewed the effectiveness of the company's financial controls, risk management, and internal control systems[169] - The Board of Directors ensures that each director, including non-executive and independent non-executive directors, retires at least once every three years in accordance with the Articles of Association[161] - The company's ESG Committee reviewed key ESG performance indicators, including internal carbon pricing implementation, methane leakage reduction, and progress towards the 2035 carbon reduction target for Hong Kong gas[176] - Female employees accounted for 22.4% of the company's Hong Kong business workforce, including gas, telecommunications, and engineering contracting, as of December 31, 2023[179] - The company aims to appoint at least one female board member by December 31, 2024, to promote gender diversity on the board[178] - The average gender pay ratio for full-time employees, including senior management, was approximately 1:1 between male and female employees[179] - The ESG Committee held one meeting in 2023 to discuss ESG ratings, climate-related issues, and ESG-linked executive compensation[176] - The company's board members received an annual fee of HKD 250,000, with additional fees for committee roles, totaling HKD 250,000 for audit and risk committee members and HKD 100,000 for nomination committee members[172] - The company signed the Equal Opportunities Commission's Racial Diversity and Inclusion Employer Charter in 2023, continuing its commitment to workplace diversity[179] - The ESG Committee identified key ESG risks and opportunities, including climate-related disclosures and the latest international ESG standards[176] - The company's nomination committee reviewed board structure, diversity policies, and recommended the appointment of Mr. Yang Leiming as an executive director and ESG committee member effective January 1, 2024[174] - The company provided training on equal opportunity laws and case studies led by professional trainers from the Equal Opportunities Commission to promote workplace inclusion[179] - External auditor fees for statutory audit services amounted to approximately HKD 14.9 million, while non-audit services (including tax services, interim review services, and transaction-related services) totaled approximately HKD 7.8 million for the year ended December 31, 2023[180] - The company maintains a robust risk management and internal control system, with the Board of Directors conducting bi-annual reviews to ensure its effectiveness, covering financial, operational, compliance, and information security controls[181] - The company has established a comprehensive risk management framework to identify, assess, mitigate, report, and monitor key business risks across all operational units[183] - The company is willing to take on reasonable and controllable risks that align with its business development goals, provided they do not compromise safety, infrastructure, financial stability, reputation, legal standing, or environmental impact[184] - The Audit and Risk Management Committee oversees the overall risk management system, with the Executive Risk Management Committee responsible for implementing and maintaining the system within acceptable risk tolerance levels[185] - The company’s risk management process is integrated into daily operations, with regular communication between regional offices, headquarters, and business units to ensure effective risk management and timely reporting[186] - The company established a Board-level Environmental, Social, and Governance (ESG) Committee to integrate ESG strategies into business operations[187] - The company's risk management framework is continuously improved to adapt to the rapidly changing business environment[187] - The company maintains a Shareholder Communication Policy to ensure effective dialogue with shareholders and investors[188] - The 2023 Annual General Meeting was held on June 7, 2023, with all directors in attendance[189] - Shareholders holding at least 5% of total voting rights can request the convening of a general meeting[190] - Shareholders holding at least 2.5% of total voting rights or 50 shareholders can propose resolutions or statements for general meetings[191] - The company has a dedicated contact person, email, and phone number for shareholder inquiries[192] - Shareholders can nominate director candidates by submitting written notices with required details[193] - The company regularly communicates with investors and analysts, especially after interim and annual results announcements[194] - The company's financial statements for 2023 were audited by PricewaterhouseCoopers, covering consolidated financial position, income, and cash flow statements[195] Market and Economic Conditions - Global economic growth is expected to slow from 3.5% in 2022 to 3.1% in 2023 and remain at 3.1% in 2024, with global inflation projected to decrease from 8.7% in 2022 to 6.8% in 2023 and 5.8% in 2024[105] - China's GDP grew by

Investment Rating - The report initiates coverage with an "Outperform" rating for Hong Kong and China Gas Company (3 HK) with a target price of HKD 6.39 [3][25]. Core Insights - Hong Kong and China Gas Company has been expanding its new energy business while maintaining steady progress in its core operations, which include gas sales and related services [2][5]. - The company has a market capitalization of HKD 110.65 billion (approximately USD 14.13 billion) and a three-month average daily trading volume of USD 12.68 million [3]. Company Overview - Established in 1862, Hong Kong and China Gas Company is the first public utility in Hong Kong, evolving from a simple gas provider to a leading player in the Chinese energy sector [8][22]. - The company's operations encompass smart energy, city gas pipeline, upstream and midstream projects, water supply and sewage treatment, urban waste resource utilization, and emerging environmental energy [8][22]. Financial Performance - The company reported total revenue of HKD 56.971 billion in 2023, reflecting a year-on-year decrease of 6.53% from HKD 60.953 billion in 2022 [4][24]. - The compound annual growth rate (CAGR) of total revenue from 2014 to 2023 was 7.83% [4][24]. - The net profit attributable to the owners of the company for 2023 was HKD 6.070 billion, an increase of 15.66% compared to HKD 5.248 billion in 2022 [4][14]. Revenue Breakdown - Gas sales and related businesses are the core operations, with gas sales amounting to HKD 42.518 billion in 2023, accounting for 74.63% of total revenue [5][23]. - The revenue from mainland China has been increasing, with sales in 2023 reaching HKD 44.982 billion, representing 78.95% of total revenue [5][23]. Profit Forecast and Valuation - The forecast for main operating revenue for FY24-26 is HKD 59.777 billion, HKD 62.446 billion, and HKD 64.947 billion, respectively, with corresponding net profits of HKD 6.298 billion, HKD 6.513 billion, and HKD 6.713 billion [6][25].