[ET Net News Agency, 4 October 2018] On 28 September, the Chongqing municipal
government proposed to reform the gas connection business by cancelling installation
charges, which would effectively cut the final connection fee to RMB1,000/household from
RMB2,150.
While the market appears concerned that the reduction or even cancellation or connection
fees could spread nationwide, the industry leaders believed what is happening in Chongqing
as actually a one-off incident given its higher gas penetration is already at 70%
(national average 35-40%), according to HSBC Global Research, who has recently interviewed
the management of the gas utilities.
Assuming connection fees cut by 50% nationwide, HSBC estimated earnings downside of
12-37% for 2019 for the gas utilities it covers, except for Beijing Enterprises (00392).
With share prices down by 11-20% since 27 September, the market seems to have priced-in
some worst-case scenarios.
HSBC believes a universal cut in connection fees across China is unlikely to occur, but
sees the risk of government intervention in the first- and second-tier cities with more
mature penetration rates and/or higher-than-average connection charges.
The research house revised its target prices for the the gas utilities it covers as
follows:
Name Rating Target Price
--------------------------------------------------------
Towngas China (01083) Buy HK$7.60 from HK$8.60
Beijing Ent (00392) Buy HK$45.00 from HK$46.00
ENN Energy (02688) Buy HK$80.00 from HK$90.00
CR Gas (01193) Hold HK$30.00 from HK$34.00
HK & China Gas (00003) Hold HK$15.50 from HK$15.50
(KL)