Soochow issued a research report stating it has initiated coverage on china gas hold (00384), giving it a "buy" rating, and expects the company's net income for FY2025-FY2027 to be 4.017/4.464/4.914 billion HKD, an increase of 26%/11%/10% year-on-year. The company's urban gas projects are smoothly raising prices, and the price difference is improving; it is actively laying out a cost advantage for acquiring overseas long-term resources.

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.

The company was founded in 2002, listed on the Hong Kong Stock Exchange the same year, and gradually developed liquefied petroleum gas and value-added service businesses starting in 2008, transforming into a comprehensive energy supply service provider. In the fiscal year 2023/24, the company's gas sales volume in urban pipeline networks reached 23.5 billion cubic meters, accounting for 5.9% of the national consumption, solidifying its leading position. In the fiscal year 2023/24, the company's net income reached 3.185 billion HKD; with the promotion of the henry hub natural gas pricing policy across various regions in 2023 and the company's focus on exploring connection business-driven growth, profitability is expected to rebound from the bottom. The company's cash flow is good, with a net cash ratio of 2.94 for the fiscal year 2023/24, a dividend payout ratio of 85.3%, and a dividend yield of ttm 7.74% (as of 2024/11/20), providing a safety margin.

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

1) Several regions are implementing the henry hub natural gas pricing policy, and in 2023/2024, the company's gross profit margin is expected to recover by 0.08 HKD per cubic meter compared to the previous year; actively signing long-term contracts for LNG at low prices and low volatility to enhance cost advantages. Starting in 2023, China has intensified efforts to promote the implementation of upstream and downstream linkage mechanisms for residential natural gas, with the linkage mechanism becoming more complete. In February 2023, the National Development and Reform Commission issued a letter regarding the price linkage mechanism for upstream and downstream natural gas, and as of the end of September 2024, 163 cities at the prefecture level and above had adjusted their prices, accounting for 56%; the average increase was about 0.21 HKD per cubic meter. In 2023/24, the company's gross profit margin reached 0.50 HKD per cubic meter, an increase of 0.08 HKD per cubic meter, restoring profitability. The company is actively signing LNG low-price low-volatility long-term contracts, and in the fiscal year 2022/23, the company's subsidiary signed long-term contracts with three US LNG exporters for approximately 3.7 million tons per year, alleviating the cost pressures from a single domestic gas source and enhancing cost advantages.

2) Actively expanding connection business, in the fiscal year 2023/24, the penetration rate of existing customers increased to 71%. As the growth of connection business has slowed, the company is actively developing the penetration rate of existing customers, with the total urban user count reaching 54.4 million households in the fiscal year 2023/24, raising the urban user penetration rate to 71%, leading to organic growth.

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

1) Comprehensive layout of value-added business, the "Yipinhui" plan is set to be listed separately, converting brand effect into economic value. The value-added service business is divided into two modules: traditional urban gas and Yipinhui. The company actively utilizes its grid advantages, leveraging its existing user base to innovatively integrate online services and offline resources. "Yipinhui" adopts an external expansion model, and has currently signed contracts with over 50 external gas customers, developing in synergy with the main urban gas business.

2) Implementing a global strategy as a green city operator, providing intelligent integrated energy services. The company invests in high-quality commercial and industrial rooftop distributed photovoltaics, and actively seeks business partners to promote EPC + operation services; cooperatively established a zero-carbon environmental energy research institute, integrating top resources and utilizing the advantages of the entire industry chain to create a dual carbon strategic demonstration base for the government and provide comprehensive carbon management system construction services for enterprises; strengthens the layout of green transportation business to increase profit contribution; actively develops electricity sales business, exploring new models of electrical utilities operation and maintenance. By the end of the 2023/24 fiscal year, a total of 221.6 MWh of contracted comprehensive energy efficiency power generation capacity was signed. Among them, commercial and industrial user-side energy storage has completed 112.7 MWh.