Management expects 1.8GW of PV projects to commence operation by the end of 2022
11M21 vol. growth reached +23% yoy; Gas dollar margin pressure persists (RMB0.5/cu m in 11M21 vs. RMB0.55/cu m in 1H21)
Maintain BUY and TP at HKD10.2
　　Smart energy: New signed industrial parks exceed expectation
　　Towngas China’s integrated photovoltaic (PV) energy projects made good progress in 2021, it signed with over 33 industrial parks by the end of 2021 (exceeding its guidance of 30, one-third of these projects located in regions outside its city gas projects’ concessional right). Constructions of these projects are underway with a total designed capacity of 1.8GW PV projects expected to commence operation by the end of 2022 (We forecast 1.2GW in 2022). Last month, it bought 31 smart energy companies from its parent company HK & China Gas (3 HK, NEUTRAL, HKD12.6) for a total consideration of c.HKD613mn, marking an important step to become the designated smart energy business platform for its parent company. Also, it has officially changed its name to Towngas Smart Energy Company Limited for trading on the HKEX since 13th January.
　　Gas: Solid business development
　　Its 2021 retail gas sales volume growth is on track to achieve its full year guidance of +20% yoy (i.e. 11M21 volume growth: 23%). High base effect will kick in in 2022E, which we forecast volume growth to slow down to +14% yoy. Gas dollar margin experienced downward pressure with 11M21 level at RMB0.5/cu m (vs. RMB0.55/cu m in 1H21), however management expects it to rebound when approaching the end of the heating season. On the other hand, management expects to have connected c.1mn new households in 2021, exceeding its previous guidance of 0.8mn new households, while it forecasts 2022 new connection to stay at c.0.8mn new households.
　　Maintain BUY and TP at HKD10.2
　　We are positive on its new venture in smart energy segment to drive future earnings growth, therefore we believe it deserves a re-rating going forward. We maintain BUY and TP at HKD10.2. Its share is trading at 10.7x/9.2x FY21E/FY22E P/E.
　　Key risks: 1) Potential share dilution from share issuance to Shanghai Gas and Affinity Equity Partner’s convertible bond conversion; 2) Smart energy business development is slower than expected; 3) Gas dollar margin pressure persists after heating season