According to the Zhitong Finance APP, Soochow Securities has released a research report stating that it has initiated coverage on China Gas Hold (00384) with a 'buy' rating, expecting the company's net income attributable to the parent company for FY2025-FY2027 to be 4.017/4.464/4.914 billion Hong Kong dollars, a year-on-year increase of 26%/11%/10%. The company's urban gas project price increase is smooth, with price differentials improving; actively expanding overseas long-term resources to obtain cost advantages.

The main viewpoints of soochow securities are as follows:

As a national leader in urban gas, it is expected to rebound from the bottom in profitability.

Established in 2002, the company went public in Hong Kong the same year, gradually developing liquefied petroleum gas and value-added service businesses since 2008, transforming into a comprehensive energy supply service provider. In the 2023/24 fiscal year, the company's urban pipeline gas sales volume was 23.5 billion cubic meters, accounting for 5.9% of the national consumption, with a solid leading position. The company's net income attributable to the parent company in the 2023/24 fiscal year was 3.185 billion Hong Kong dollars; with the promotion of natural gas price increase policies across the country in 2023 and the company's excavation of interconnection business for internal growth, profitability is expected to rebound from the bottom. The company has good cash flow, with a net cash ratio of 2.94 for the 2023/24 fiscal year, a dividend payout ratio of 85.3%, and a dividend yield of ttm7.74% (November 20, 2024), providing a safety margin.

The urban gas price difference is being restored, and the interconnection business is shifting towards internal expansion.

1) Many places implement natural gas price increase policies, with the company seeing an increase in gross margin of 0.08 yuan per cubic meter in 2023/2024; actively signing LNG long-term contracts with low prices and low volatility to enhance cost advantages. Starting in 2023, China has increased efforts to promote the implementation of a linkage mechanism between upstream and downstream for residential users, making the linkage mechanism more complete. In February 2023, the National Development and Reform Commission issued a letter on the relevant situation of providing information on the upstream and downstream natural gas price linkage mechanism. By the end of September 2024, 163 cities at the prefecture level and above nationwide adjusted prices, accounting for 56%; the average increase was approximately 0.21 yuan per cubic meter. In 2023/24, the company's gross margin reached 0.50 yuan per cubic meter, an increase of 0.08 yuan per cubic meter, repairing profitability. The company actively signed LNG long-term contracts with low prices and low volatility, with its subsidiary companies signing procurement agreements totaling approximately 3.7 million tons per year with three American LNG exporters in the 2022/23 fiscal year, easing the pressure of cost increases from a single domestic gas source and enhancing cost advantages.

Actively expand the connection business, increase the penetration rate of existing customers to 71% in the fiscal year 2023/24. With the slowdown in the growth of connection services, the company actively develops the penetration rate of existing customers. By the fiscal year 2023/24, the accumulated number of urban users has reached 54.4 million households, and the urban user penetration rate has increased to 71%, bringing about internal growth.

Explore value-added services and comprehensive energy services, creating the company's second growth engine.

Comprehensively layout value-added services, 'One Product Wisdom' plan to be spun off for listing, transforming brand influence into economic value. The value-added service business is divided into two modules: traditional urban gas and One Product Wisdom. The company actively leverages grid advantages, utilizes the existing user base, innovatively integrates online services and offline resources. 'One Product Wisdom' adopts an overseas expansion model and has already signed contracts with more than 50 overseas gas customers, coordinating development with the core urban gas business.

Implement the green city operator strategy, providing intelligent integrated energy services. The company invests in the construction of high-quality distributed photovoltaics on industrial and commercial rooftops, actively seeks business cooperation partners, promotes EPC+ operation and maintenance services; cooperates to establish a zero-carbon environmental energy research institute, integrates top resources and utilizes the advantages of the entire industry chain, creating a model dual-carbon strategic demonstration base for the government, providing comprehensive carbon management system services for enterprises; strengthens the layout of green transportation businesses to increase profitability contribution; actively engages in electricity sales business and explores new models for power operation and maintenance. By the end of the fiscal year 2023/24, the total contracted capacity for comprehensive energy efficiency has reached 221.6 MWh, with the completion of 112.7 MWh of energy storage for industrial and commercial users.