CGH reported FY20 earnings of HK$9,188mn, up 11.7% YoY, in line with consensus and our estimates. FY20 results revealed that CGH suffered quite severe impacts in 1Q20, especially from C&I gas sales volume, township project ignitions and value added services. Cash flow and balance sheet improvement was also slower than expected pace, as a result. We think FY20 results was commendable, however, as CGH still delivered 16.2% core earnings growth in the context of losing two months operating time. For FY21E guidance, CGH expected residential connection to reach 5.5-6.0mn household with new connection growth from LPG micro grid, and retail gas volume to increase by 15% YoY. We raise our TP by 11.2% to HK$37.12. Reiterate BUY.
- FY20 results in line. Revenue was flat at HK$59.4bn, 5.2% lower than our estimates due to pandemic led sales drag on gas volume and value added services. GP increased 21.6% to HK$17.1bn with GPM increased 5.0ppt to 28.7%, reflecting gas connection and value-added services had boost CGH’s profitability. Higher GPM compensated other losses recorded and share profit decline from JVs and associates. Mgmt. explained CGH had consolidated Huhhot project and cease drawing fund from investment fund for developing coal to gas project during the year which led to contribution decline from JVs and associates. Net profit was HK$9,188mn, up 11.7% YoY. Stripping out non-recurring impacts, core earnings was HK$9,467mn, up 16.2% YoY. CGH’s results was in line with consensus and our estimates.
- COVID-19 dragged FY20 performance; FY21E outlook remains optimistic. City gas volume increased only 6% in FY20 due to factories and businesses shutdown during 1Q20 in China. Mgmt. saw recovery from Apr, and released positive outlook for FY21E, including 1) city gas sales volume to increase 15% YoY; 2) residential connection to reach 5.5-6.0mn household; and 3) VAS segment to have gross profit increase 30% YoY. The Company also announced new business form to develop LPG micro-pipe network for extending service coverage to smaller township and villages through exclusive LPG storage tank technologies. Given supports from various measures, we think CGH’s targets are highly achievable.
- Raise SOTP TP by 11.2% to HK$37.12. We revise our estimates based on 1) more conservative gas consumption outlook for township users, and 2) additional contributions from LPG micro-pipe network connection. Our FY21/22E EPS is trimmed slightly by 2.2% and 0.5%. Our SOTP valuation reflecting our long term view, however, is revised up by 11.2% based on more stable and rapid earnings growth. Reiterate BUY on CGH.
