汇丰银行——中国公用天然气行业研究报告2008年11月

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收藏 2008-12-15

Slowdown in economy likely to have only marginal impact &#1048599; More M&amp;A opportunities exist for gas players with strong balance sheets &#1048599; BEH our top pick on its defensive merits Gas operators’ prompt move to combat slowdown in property market. In view of the stagnant property market, city gas operators have shifted their focus to increasing connections for old buildings and economic houses (with floor space below 90 sq m). We do not expect the slowdown in the property market to affect city gas operators much. Gas demand remains solid. Supported by a natural gas price advantage and the Chinese government’s energy consumption policy, gas demand in China is likely to remain strong. Any reduction in gas demand from the city gas operators’ existing commercial and industrial users will be easily taken up by new customers, but with a time lag. More consolidation opportunities emerge for strong gas players. Due to the recent share price pullback, many city gas operators’ valuations appear attractive. We believe the current market circumstance provides opportunities to gas players who have solid balance sheets to expand their businesses. BEH is our preferred gas operator. We lower our target prices for city gas operators to reflect: (1) lower projections of new connections; (2) lower forecasts of piped gas sales volume; (3) a change of our valuation methodology to one blending DCF-based valuation with PE-based valuation. Our top pick is BEH, as it has more reliable earnings and a stronger balance sheet than competitors, which allow it to become one of the major consolidators to benefit from the business opportunities in the fast growing gas market.目录Investment summary 4 Marginal impact of slowdown in property market 4 Gas sales remain robust 4 More M&amp;A opportunities emerges for gas players with strong balance sheet 4 Valuations and ratings 5 BEH – our top pick 8 Upside and downside risks to sector 9 Impact of slowdown in property development 13 China’s property market is cooling down 13 Expansion strategy changed to reduce impact 13 Assumptions changed for pipeline construction business 14 Price and policy support strong gas demand 15 Natural gas retains a price advantage in China 15 Government continues to encourage natural gas usage 15 More M&amp;A opportunities emerge for strong players 17 Valuations appear attractive 17 Strong gas players will become the consolidators 18 Company highlights 19 Beijing Enterprises 20 Xinao Gas 25 China Gas 30 Towngas China 36 HKCG 40 Appendix 44 Appendix 1: PE band charts 45 Appendix 2: PB band charts 46 Appendix 3: Winners and losers 47 Disclosure appendix 49 Disclaimer 54 ContentsInvestment summary &#1048599; We expect the slowdown in the property market to affect city gas operators only marginally, as they move to increase connections in old buildings and economic houses &#1048599; More M&amp;A opportunities exist for gas players who have strong balance sheets and cash positions &#1048599; Our top pick is BEH, due to its defensive merits - reliable earnings, no connection fee exposure and strong balance sheetMarginal impact of slowdown in property market As around 50-60% of city gas operators’ residential connection fee revenues come from new buildings, the recent slowdown in the property market could affect the city gas operators’ pipeline construction business. To minimize the impact of this slowdown, city gas operators have shifted their focus to increasing connections in old buildings and economic houses (which floor space is below 90 sq m), which are promoted by the Chinese government. We believe that once the government’s economic housing policy succeeds, the pipeline construction business will pick up. Therefore, we lower our new connection rollouts assumption for city gas operators by only 1-9% pa for 2008-10. Gas sales remain robust According to the city gas operators, as most of their major commercial and industrial (C/I) users are non-export manufacturers, their operations are not significantly affected by the deceleration in global trade.We believe that domestic natural gas will maintain its price advantage (see page 15) even if China cuts its oil product prices. Because of this advantage and the Chinese government’s policy of encouraging the use of natural gas (targeting an increase from 3.5% of total energy consumption in 2007 to 10% by 2020), we estimate gas demand in China should remain solid going forward. Thus, we agree with the management of city gas operators that any decline in gas demand from existing C/I customers will easily be taken up by other C/I users. However, we believe there might be a time lag to find new customers, and as a result, we lower our gas sales volume assumptions for city gas operators by 1-9% pa for 2008-10. More M&amp;A opportunities emerges for gas players with strong balance sheet Attractive valuation Due to the current financial market turmoil, city gas operators’ share prices have dropped significantly, making them attractive; all the city gas operators are trading at their PB troughs. China Gas and Towngas China are trading atdiscounts of 23-49% to their 2008 book values. Our equity replacement value (ERV) analysis suggests that Xinao Gas is trading at a discount to its replacement value (vs. trading at a premium to its book value). China Gas and Towngas China are trading at even larger discounts of 51-56% to their replacement values than to their book values. Thus, hypothetically it would be cheaper to buy these companies than to build comparable entities. Strong gas players should be the winners Affected by the tightening credit market, it is increasing difficult for potential buyers to finance sizeable acquisitions. However, companies like Petrochina, China Resources Holdings and BEH, which either have large cash on hand or strong balance sheets, are able to acquire quality assets to expand their gas businesses. Valuations and ratings Earnings revisions We have reduced our 2008-10e earnings forecasts for the city gas operators after factoring in: (1) theprobability that there will be fewer new connection rollouts than initially expected; and (2) the projection of lower growth in gas sales volume than foreseen earlier. Earnings sensitivity The following charts show the sensitivity of city gas operators’ 2009e earnings to the key earnings drivers, i.e. number of new connections, connection fee, piped gas sales volume, piped gas sales price, LPG sales volume, LPG price and interest rate. Of the group, Xinao Gas relies the most on connection fee income; its earnings are the most sensitive to changes in the number of new connections and connection fee. As China Gas has the lowest profit margin for gas sales, it shows the highest earnings sensitivity to piped gas sales volume and price. China Gas and Towngas China show higher earnings sensitivity to LPG price and sales volume as gross profits from their LPG businesses account for a higher proportion of overall gross profits than they do at Xinao Gas. In terms of earnings sensitivity to interest rates, ouranalysis shows that China Gas is the most exposed to interest rate hikes, given that it has the highest gearing in the peer group. HSBC versus consensus Our 2008-10e earnings forecasts for BEH, Xinao Gas, China Gas and Towngas China differ from consensus by -3% to -7%, -0.4% to +2%, -42% to +0.9% and -3% to -10%, respectively, mainly for the following reasons: &#1048599; BEH: We believe the market has not factored in the slowdown in gas sales of Hua You, a subsidiary of BEH. &#1048599; Xinao Gas: Our 2008-09 earnings estimates are generally in line with market consensus estimates. Our 2010 earnings estimate is slightly higher than consensus, as we assume the margin on its LPG business will expand faster once the production of DME reaches scale. &#1048599; China Gas: Our FY09-10e earnings forecasts are significantly lower than consensus, as we believe the street has underestimated the finance costs and has not factored in the slowdown in new connection rollouts and gas sales growth. However, our FY11 earnings estimate is in line with the market forecast, as we assume the company’s net gearing will drop substantially once it reduces its acquisition pace and more city gas projects commence operations. &#1048599; Towngas China: Compared with consensus, we factored in lower projections of new connection rollouts and piped gas sales growth. Our 2008-10 earrings forecasts for HKCG are 3-18% below consensus forecasts, due to different assumptions about its China gas business and its investment income.Change of valuation methodology Previously, we employed only a discounted cash flow (DCF) method to derive the underlying value of city gas operators. Given that investors’ perception of value is easily affected by the industry cycle and market sentiment (e.g., they discount a company’s underlying value during a down cycle, and vice versa), DCF-based valuation is not enough to truly reflect a company’s potential share price. Therefore, we change our valuation methodology by blending PE-based valuation with DCF-based valuation to derive target prices for the city gas operators. For BEH and HKCG, we retain a sum-of-the-parts valuation methodology, as their businesses span several different sectors, requiring different valuation methodologies.After lowering our earnings forecasts and incorporating HSBC’s latest cost of equity (3.5% risk-free rate and 10.5% market risk premium vs. previous 4% risk-free rate and 7.5% market risk premium), our DCF-based values for city gas operators dropped by 22-36%. As Xinao Gas has been listed the longest of any company in the group, we use its last down cycle PE, of 10x, as a benchmark to derive PE-based values. Therefore, our target prices for city gas operators are cut by 9- 46%. We reiterate our Overweight (V) ratings on BEH, Xinao Gas, China Gas and Towngas China, as they provide 33-102% potential total returns. We have a Neutral (V) rating on HKCG. BEH – our top pick We prefer BEH to Xinao Gas, China Gas and Towngas China as it is defensive for a volatile market; with more reliable earnings from its gas business, and it has no exposure to the connection fee issue. Also, with a net cash position of HKD1.3bn in 2008, BEH is well-equipped to acquire gas assets to expand its gas business and capture opportunities in the fast growing natural gas market. If acquisitions can be concluded, we see a potential upside to earnings. Our target price, of HKD35.60, suggests 33% total potential return.As for Xinao Gas and China Gas, given their exposure to the connection fee issue, they are more vulnerable to the economic downtrend, causing their share prices to be volatile. Upside and downside risks to sector The key upside risks to the sector include: (1) more cities being allowed to adopt the automatic gas cost pass-through mechanism; (2) more city gas operators vertically integrating into upstream business; (3) the development of economic houses is hastened; (4) higher-than-expected gas sales volume; and (5) margin expansion in LPG business.Downside risks to the sector include: (1) city gas operators being unable to pass through their increased upstream costs to customers; (2) the cancellation of connection fees without any compensation; (3) lower-than-expected gas sales volume; and (4) credit market tightening.