[ET Net News Agency, 3 January 2018] Daiwa Research lifted its target price for Hong
Kong & China Gas (HKCG)(00003) to HK$16.3 from HK$15.9, and maintained its "outperform"
rating.
The research house said HKCG was the best performing 2017 Hong Kong utility with a
23% (including bonus shares) share-price appreciation (peers: 3-11%), yet HKCG has only
two "buy" ratings in the market due to its rich valuation (27x PER) and low dividend yield
(2.5%).
However, Daiwa sees HKCG as one of the strongest long-term cash-flow generators, with
its unique HK towngas business model to achieve nearly 15 years of 10% DPS growth (1998-
2017), in the form of 1-for-10 bonus shares with a fixed DPS (with the exception of
2002-05 and 2008), while having contributed CNY40bn of total capex to develop its China
city-gas business since 2000.
It believes HKCG is similar to the highest-rated corporate bond, set for a 190% 2000-17
dividend return, with its inflation-hedged nature to continue (10% DPS growth) in the near
term, maintaining its yield gap in a coming rising interest-rate cycle. (KL)