CGH is resuming operations following local government’s instruction. Mgmt. saw mild impacts on gas sales volume from Covid-19 disruption, as 1) CGH only has ~6% gas sales exposures in Hubei; 2) outside Hubei, C&I gas sales impact won’t last long; and 3) residential connection is only subject to slight impact due to low season in 1Q. Warm winter and Russia supply delay also caused slight drag on gas sales. We trim CGH’s earnings FY20-22E earnings outlook slightly. Reiterate BUY with TP unchanged at HK$38.0.
- Mild impacts from Covid-19 outbreak. We estimate CGH will suffer 3.6% gas sales volume loss due to pandemic disruption in our base case analysis for 3 months impact in Hubei and 7 weeks recovery for C&I gas consumption outside Hubei. We also expect increasing residential gas consumption to compensate part of sales loss from C&I users. Overall, we estimate only 0.5% earnings decline from gas sales volume decline due to Covid-19 in FY20/21E.
- Residential connection remains intact. Mgmt. expects labor return delay will have limited impact to annul connection target in FY20/21E, as Jan-Feb is normally construction low season, and CGH 1) had fulfilled most of connection works by Dec-19 for FY20E, and 2) construction pace for FY21E can be boosted up in the following months for potential delay in Feb-Mar. In the worst case, we expect CGH to cut 300-400k household connection target in FY21E, which we estimate to bring about ~1.7% earnings decline.
- Warm winter suppress gas consumption. According to preliminary data, mgmt. found CTG users’ gas consumption lower than expectation due to warm winter. We revise our average gas usage assumption down by 15% from 665cbm to 565cbm, and estimate it will bring about 223mcbm gas volume decline to CGH, accounting for ~1.2% of retail gas volume.
- Russia gas experienced slight delay. According to mgmt. the new pipeline started gas supply to Harbin City from 21 Jan, 2020, with short-term supply constrain at about 0.25mcbm. Russia gas’ supply progress was slightly lagging behind due to some testing and improvement works. We expect Russia gas supply will ramp up soon, and we maintain outlook that CGH’s project in NE areas will reach 900mcbm additional gas supply in FY21E.
- Maintain BUY with TP unchanged at HK$38.00. We trim CGH’s FY20-22E EPS outlook slightly by 0.8%/0.9%/0.7%. Factored in all the potential impacts, we expect CGH’s gas sales volume growth to slow from 24% to 20% in FY20E, while FY21E gas sales outlook is largely intact. We think CGH’s earnings would be resilient in a volatile market with high uncertainties.
