According to research reports issued by China Construction International, China Gas Holdings (00384) is expected to see a 26% year-on-year decline in net profit to HKD 3.1 billion in the 2024 fiscal year. Excluding the provision of HKD 685 million for overdue accounts and other one-time items, core profits fell 4% YoY to HKD 4 billion.
The bank remains cautiously optimistic about the company's prospects for the 2025 fiscal year. It is expected that the company's retail natural gas sales in the 2025 fiscal year will increase by 3% YoY, and the gross margin per cubic meter is expected to increase by 2-3 cents. Due to the sluggish real estate market, it is expected that the number of new connected residential users will decrease by 21% YoY in the 2025 fiscal year. At the same time, as more low-profit margin old building connection projects are carried out, the profit margin of this sector will shrink. In addition, it is expected that the gross profit of value-added services business will increase by 7% YoY in the 2025 fiscal year. Assuming that the exchange rate of RMB against HKD remains stable, the bank predicts that core profit will increase by 4% YoY in the 2025 fiscal year.
Considering the flat profit prospects for the 2025 fiscal year, it is believed that the stock price of China Gas may still perform weakly in the short term. The earnings forecast for fiscal 2025 and fiscal 2026 was lowered by 22% and 24% respectively, with the target price lowered from HKD 7.00 to HKD 6.60. Neutral rating is maintained until there is a stock price catalyst.