Tianfeng Securities·2024-03-17 16:00Investment Rating - The report assigns a "Buy" rating for China Resources Gas (01193) with a target price of HKD 30.8, reflecting a potential upside from the current price of HKD 25.95 [1][5]. Core Views - The gas industry is expected to experience a recovery in both volume and price, which will positively impact the company's performance [1][5]. - China Resources Gas has established itself as a leading urban gas operator in China, with a significant market presence and a strong growth trajectory in gas sales [2][12]. - The demand for natural gas in China is projected to grow, supported by policy initiatives and a shift towards cleaner energy sources [3][27]. Summary by Sections Company Overview - China Resources Gas has been operating in the urban gas sector since 2004 and was officially listed in Hong Kong in 2008. The company has expanded to cover 275 urban gas projects, serving over 324 million people [2][12]. - The gas sales business is the core of the company's operations, contributing 85.3% of revenue in H1 2023, with a stable growth trend observed over the years [12][21]. Industry Demand Recovery - China's natural gas consumption is on the rise, with a 7.6% year-on-year increase in 2023, reaching 394.53 billion cubic meters [3][28]. - The industrial sector is becoming a major driver of gas consumption, with a compound annual growth rate of 15.04% from 2017 to 2022 [3][27]. - The company has a strong position in the market, benefiting from the recovery in demand and the increasing share of natural gas in the energy mix [3][29]. Cost Structure and Margin Recovery - The company is benefiting from a downward trend in upstream costs, with the average procurement cost decreasing to HKD 3.08 per cubic meter in H1 2023 [4][5]. - The implementation of a price linkage mechanism is expected to further enhance the company's gross margin, which improved to HKD 0.5 per cubic meter in H1 2023 [4][5]. - The company's financial health is strong, with a low debt-to-asset ratio and significant cash reserves, allowing for continued investment and growth [25][26]. Profit Forecast and Valuation - The company is projected to achieve net profits of HKD 55.5 billion, HKD 64.1 billion, and HKD 71.3 billion for the years 2023 to 2025, reflecting growth rates of 17.3%, 15.4%, and 11.2% respectively [5][21]. - The target price of HKD 30.8 corresponds to a price-to-earnings ratio of 10 times for 2025, indicating a favorable valuation compared to industry peers [5][21].