On 16 June 2017, HKCG announced it plans to raise its standard gas tariff inHong Kong by HKD1.1cent/MJ, effective from 1 August 2017. The actualincrease of tariff （including standard tariff and fuel cost adjustment） isequivalent to 4.3%.
　　DB comments
　　The proposed tariff adjustment is earlier than our expectations as previouslywe assumed a tariff hike of HKD1cent/MJ on 1 Apr 2018. Last round of tariffhikes took place two years ago on 1 Aug 2015 and HKCG promised to maintainthe tariff （after the proposed adjustment） for at least another two years.
　　After the tariff hike, we estimate that HKCG’s gas tariff is still c.26%/25%cheaper than CLP/HKE’s electricity tariff on a heat adjusted basis afterconsidering the potential power tariff cut after the new SOC regulation （8%）being implemented. We assume further rounds of gas tariff hike will occur onAug 2019, Aug 2021 after which the price adjustment will take place every 3years.
　　In the annual general meeting held on 7 Jun 2017, besides indicating apotential gas price hike in HK, the management guided that they are activelyseeking to develop new energy business in China and expect to investRmb10bn in the next three years. The new energy segment now accounts forc.5% of HKCG’s total profit and it is expected to increase to 20-25%. Themgmt. is also confident that the company can continue to issue bonus shares,as it has done for the past eight years.
　　Earnings adjustment and recommendations
　　We raise our 2017-19E earnings forecast by 1% to reflect the announced tariffhike of HKD1.1cents/MJ in Aug 2017 and an assumed tariff hike ofHKD1.1cents/MJ in Aug 2019. We cut our TP to HKD11.6 （from HKD12.4） toreflect the earnings adjustments and the issuance of bonus shares （10% ofexisting shares）。
　　We maintain Sell on HKCG due to its expensive valuations （27.6x 2017 P/E vs.
　　peer avg. of 11x）。 We are less positive than the management on the newenergy business given the low oil price environment. We prefer Towngas（Hold, HKD4.83） over HKCG （Sell） due to stronger leverage on recovering Chinabusiness and much less demanding valuations.