Daiwa Research initiated coverage of Kunlun Energy (00135), with an "outperform" rating and a target price of HK$8.
It said Kunlun has comprehensive exposure to the natural gas mid and downstream areas. While Daiwa thinks the valuations of pure city-gas distributors largely reflect their strong earnings growth, the research house sees Kunlun offering a good risk-reward profile for investors seeking exposure to China's growing gas consumption amid increasing market volatility.
Daiwa said the potential spinoff of the SJ Pipeline at a subpar valuation remains an overhang. But the spinoff would require independent shareholders' approval, the valuation is likely to be reasonable. With Kunlun trading at 0.9/0.8 SD below its past-10-year average PER/PBR, Daiwa sees this overhang as priced in.
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