J.P. Morgan lowered its target price for Hong Kong & China Gas (HKCG)(00003) to HK$14.8 from HK$15.5 and maintained its "underweight" rating.
The research house said HKCG's 1H results missed its estimates by 10% due to worse-than-expected revenues and margins from all three business units - HK gas, China gas and New Energy segments.
The dollar margin at its China gas business fell 10% to Rmb0.55/m3, due to the inability to pass through higher gas costs. Management gave bearish guidance for 2H amid an economic slowdown in HK (due to protests) and Mainland China (due to trade tensions). It revised
down China volume guidance from mid-teens to >10% and guided to -1% volume growth for HK.
JPM cut its volume growth forecasts for the China business (from 13% to 11%) and the Hong Kong business (from 0% to -1%). It also cut its 2019-21 EPS estimates by 20% to factor in weaker operating earnings and a drop in property revaluation gains.
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