CHINA GAS HOLD(HK:00384) Changjiang Securities·2025-03-20 11:08Investment Rating - The report assigns a "Buy" rating for the company, marking it as a first-time recommendation [11]. Core Insights - China Gas is one of the largest urban gas companies in China, transitioning from rapid expansion to a stable operational phase, with a consistent dividend payout of HKD 2.72 billion over the past two years and a dividend yield of approximately 7% [2][5]. - The company is expected to reverse the trend of significant profit declines starting from the fiscal year 2024/25, with earnings per share (EPS) projected to resume growth due to improved gross margins from residential gas pricing and reduced upstream procurement costs [2][5]. - The current price-to-book (PB) ratio is at 0.7x, and the price-to-earnings (PE) ratio is at 10.7x, indicating potential for value re-evaluation [5]. Sales Volume - In the fiscal year 2023, the total gas sales volume reached 41.7 billion cubic meters, with compound annual growth rates of 11.1% and 17.9% over the past five and ten years, respectively [6][39]. - The market share of China Gas in the national natural gas consumption increased from 4.9% in the fiscal year 2014/15 to 10.6% in 2023/24 [6][39]. - The retail gas volume growth forecast for the fiscal year 2024/25 has been revised down from over 5% to over 2% due to industrial gas demand constraints [6][39]. Sales Price - As of October 2024, approximately 62% of residential gas sales are at adjusted prices, with residential gas prices increasing from HKD 2.71 per cubic meter in 2022 to HKD 2.97 in 2023 [7]. - The gross margin has gradually recovered from a low of HKD 0.50 per cubic meter in the fiscal year 2023/24 to an expected HKD 0.53 per cubic meter in 2024/25 [7]. Connection Projects - The number of connected residential households peaked at 5.43 million in the fiscal year 2019/20 but has been declining, with projections of 1.26 million, 1.12 million, and 0.98 million for the fiscal years 2024/25 to 2026/27, respectively [8]. - The contribution of connection projects to overall performance has decreased to approximately 19.4% in the fiscal year 2023/24, indicating limited future impact on profits [8]. Value-Added Services - The value-added services segment achieved an operating profit of HKD 1.58 billion in the fiscal year 2023/24, accounting for 23.6% of total revenue, with a year-on-year growth of 5.7% [9]. - The company plans to spin off its value-added services platform, which is expected to enhance penetration rates and drive future growth [9]. Financial Forecast and Valuation - Revenue projections for China Gas are estimated at HKD 80.25 billion, HKD 79.74 billion, and HKD 79.76 billion for the fiscal years 2024/25 to 2026/27, with net profits of HKD 3.64 billion, HKD 4.19 billion, and HKD 4.71 billion, respectively [9]. - The corresponding PE ratios are projected at 10.7x, 9.3x, and 8.3x, while PB ratios are expected to be 0.70x, 0.68x, and 0.65x [9].