2021 core results in line with our expectations
　　Beijing Enterprises Holdings (BEHL) announced its 2021 results: Revenue grew 17.6% YoY to HK$80.44bn, core profit (excl. impact of one-off factors) rose 13.6% YoY to HK$8.62bn, and attributable net profit (NPAT) climbed 87.6% YoY to HK$9.92bn, implying EPS of HK$7.86. The firm’s core results are in line with our expectations.
　　BEHL plans to pay a year-end dividend of HK$0.85/sh. Together with an interim dividend of HK$0.40/sh, its dividend in 2021 totaled HK$1.25/sh (up by 10% YoY), implying a core profit dividend payout ratio of 18.3%.
　　By business segment: Piped gas operation yielded profit of HK$3.14bn, up 12% YoY, with sales volume of gas of Beijing Gas in 2021 up 5% YoY to 18.9bn cubic meters. The beer business’s operating profit grew 63% YoY to HK$0.58bn; solid waste treatment business saw its operating profit surge 268% YoY to HK$1.70bn.
　　Joint ventures and associations: PetroChina Beijing Gas Pipeline Co., Ltd. contributed attributable net profit of HK$1.63bn (up 19% YoY). VCNG’s attributable net profit grew 47% YoY to HK$1.04bn. China Gas Holdings’ attributable net profit fell 2% YoY to HK$2.17bn.
　　Trends to watch
　　Main businesses likely to continue to contribute steady earnings in　2022. We note that profitability of the firm’s piped gas, solid waste treatment, and beer businesses in 2021 largely recovered to their pre- pandemic levels. Looking further into 2022, we expect profitability of BEHL’s main businesses to remain stable on the back of robust operations of Beijing Gas, EEW Group, and Yanjing Beer.
　　Improved dividend payout ratio and share repurchase plan likely to　drive valuation recovery. BEHL’s management guided at its 2021 results announcement that it would further increase its dividend payout ratio in 2022 and launch a new share repurchase program. We expect the improved dividend payout ratio and share repurchase plan to further drive valuation recovery given that the firm’s current stock price and valuation are at their historical lows.
　　Financials and valuation
　　We keep our 2022 and 2023 earnings forecasts largely unchanged. The stock is trading at 3.7x 2022e and 3.2x 2023e P/E. Considering lower median sectoral valuation, we cut TP 10% to HK$35.1 (5.1x 2022e and 4.5x 2023e P/E), offering 39.0% upside. Maintain OUTPERFORM.
　　Risks
　　Sharp volatility in international oil and gas prices; lower-than-expected increase in dividend payout ratio.