Morgan Stanley has released a research report stating that it has given a rating of 'in line with the market' to HK & China Gas (00003), with midterm performance roughly in line with expectations. The estimated target price is HKD 6.4. The report from Morgan Stanley states that the company's dividend for the first half of the year remained stable as expected, with better-than-expected profit margins for its mainland China gas business, but slightly lower-than-expected gas sales volume. Free cash flow and dividends for the full year are still the main areas of concern.
The bank pointed out that the company's earnings per share have been lower than its dividend payout per share in recent years. Management expects the company's annual operating cash flow to exceed CNY 9 billion in 2024, and the company is committed to keeping its capital expenditures within CNY 7.2 billion. Management does not believe that maintaining a dividend payout of more than 100% is a good practice, nor does it want to increase debt to pay dividends. Morgan Stanley believes that if HK & China Gas wants to maintain a full-year dividend payout of CNY 6.5 billion, its free cash flow will be threatened. HK & China Gas management stated that they are still in negotiations to sell their Thai oil field project, and their Inner Mongolia chemical plant is nearing completion of its restructuring. The company emphasized that its debt level is healthy and will only sell the project if the offer price is ideal.
