【行业研究报告】中国燃气-Expect mild recovery ahead

CGHreleasedpressured1HFY23results,butitsFCFturnedpositive.Lookingaheadin
2HFY23E,CGH’smgmt.wereoptimistic,considering:1)highergasdemandduringthe
heatingseason;2)betterepidemiccontrolmeasuresmaystimulateeconomicrecoveryand
boostgasdemandrecovery;3)effectiveprice-throughmeasuresenabledCGHtoachieve
full-yeardollarmargintargetofRMB0.5cbm;4)”SmartLiving”maintainsrobustgrowth
momentum.CGHistradingatundemandingvaluationataround7xFY23forwardPE.We
believegassalesgrowthmayrecoverastheepidemicmeasuresfurtherrelax,andthe
SmartLivingwillcontinuetherobustgrowthmomentum.Thus,weassignTPofHK$13.2
toCGH,basedon11xFY23EtargetPE(~closetoavg.5-yearhistoricalPE).We
transfercoveragewithBUYrating.
1HFY23resultswereunderdemandsidedisruptionpressure;Freecashflowturned
positive.Duetothechallengingoperatingenvironmentbypandemiccontrolandhigher
positive.Duetothechallengingoperatingenvironmentbypandemiccontrolandhigher
gascosts,CGH’scoreearningsdropped22.2%YoYtoHK$3,289.9mnin1HFY23;Yet,
drivenbyresilientoperatingcashflowgrowthof14.3%andbetter-controlledCAPEXand
M&Ainvestments,FCFturnedpositivetoHK$0.84bn(~HK$-3.1bn)in1HFY23.For
FY23E,webelieveCGHcanmaintainpositivefreecashflow,supportedbystrong
operatingcashflowandoptimizedCAPEXcontrol.
Theoutlookofgassalesanddollarmarginareexpectedtofolloweconomic
recoveryinFY23E.In1HFY23,givenmacroweaknessandhighergascosts,totalgas
salesvolumegrew7.4%YoY(~1HFY2221.1%YoY)to16.7bcmandresidentialgassales
grew10%YoY(~16.8%YoYin1HFY22).Thedollarmarginwasinlineandrecorded
RMB0.54cbm.Lookingaheadin2HFY23E,sincebetterepidemiccontrolmeasuresmay
leadtoeconomicrecoveryandstimulusgasdemand,weexpectCGH’scity&township
gassalestogrowby10%YoY,followingmgmt’sguidance.Undertheeffectiveprice-
throughmeasures,weestimatedthedollarmargintoachieveRMB0.5cmbinFY23E.
Slowerbutsteadygasconnectionpace.Giventhedownwardpressureintherealestate
industryanddelayedconnectionengineeringworkunderepidemiccontrol.In1HFY23,the
newly-addedtownshipconnectionreceded3.3%YoY,withnewly-addedcityresidential
connectiondeclined12.4%YoY.ForFY23E,WeexpectCGH’sfull-yearnewresidential
connectionwillreachthemgmt’sfull-yearguidanceofaround2.66mn,anditmaytendto
leveloffinthefollowingfewyears.
SmartLivingmaintainedsoundgrowthmomentum;VASdevelopedsteadily.VAS’s
GPraisedby0.3%YoYtoHK$1.7bnin1HFY23.Inparticular,‘SmartLiving’recorded
impressiveresults.ItsGPboostedby105%YoYtoHK$767mn,anditspre-taxprofit
increasedby106%YoYtoHK$586mn.Inthenearfuture,webelieve‘SmartLiving’will
furtherunleashitsvalue.
WeassignTPofHK$13.2toCGHwithBUYrating.CGHistradingataround7xFY23
forwardPE.WebelievetheweakgassalestogetherwithCGH’sslowergasconnection
expectationhavebeenlargelypricein.WeassignTPofHK$13.2,basedon11xFY23E
targetPE(~closetoavg.5-yearhistoricalPE)tofactoringasgrowthrecoverydueto
relaxingepidemiccontrolandsolidgrowthmomentumof“SmartLiving”.Wetransfer
coveragewithBUYrating.