1H21 core profit up 26% yoy to HKD4.1bn thanks to strong recovery from lower base same period last year
5 years gas sales volume CAGR target of 20% (incl. SH Gas), we forecast 2H21E gas sales growth to reach +17% yoy
Maintain NEUTRAL and edge up TP to HKD13.0 from HKD12.7
1H21 results driven by gas sales + new energy segment
HKCG reported solid 1H21 results, with its revenue up +36% yoy to HKD24.7bn, driven by strong recovery in gas sales business in China (segment revenue up 42% yoy) and new energy business (segment revenue surged +137% yoy). Its EBITDA margin slid 4.7ppt to 27.1%, mainly dragged by its higher gas procurement cost affecting its gas sales business margin (i.e. gas dollar margin was RMB0.55/cu m in 1H21 vs. RMB0.6/cu m in 1H20), and margin pressure from its new energy business. Its share of associates surged 143% yoy, lifted by recovery in its invested city gas projects and no further markdown in valuation of its stake in the IFC property (vs. c.HKD300mn markdown in 1H20). After muting the effect of its net investment gains and impairment provision from its new energy business, its core profit was up 26% yoy to HKD4.1bn, above our previous estimation of HKD3.9bn). HKCG declared an interim dividend of HKD0.12/share, same as 1H20, implying 55% in payout ratio (vs. 66% in 1H20).
Upbeat on future gas vol. outlook in China
Gas sales business saw strong recovery as its retail gas sales vol. growth surged 26% yoy, driven by industrial (+38% yoy) and commercial users (+31% yoy). Mgmt. sees gas demand to be robust under the carbon neutrality backdrop in China, also the steam and hot water market will further induce gas demand. Together with the vol. contribution from SH Gas, HKCG guides a 5-year gas sales vol. CAGR of 20%. For 2H21E, we forecast its overall gas sales vol. growth to reach +17% yoy, isolating SH Gas’s contribution.
Maintain NEUTRAL and edge up TP to HKD13.0
Apart from its traditional gas sales business, HKCG also has increasing exposure in other new business such as extended business, energy supply to industrial parks and biomass utilisation projects, which will provide additional boost to its future growth. We revise up our FY21E-FY23E core profit by 5% on higher growth forecast on its China gas sales and new energy segment.
We edge up our DCF-TP to HKD13.0 from HKD12.7, implying 31.0x/28.5x FY21E/FY22E P/E, its current valuation is rich, maintain NEUTRAL.