CRG recorded net profit of HK$5,152mn in FY20, flat as FY19. The Company suffered quite severe business drag due to impacts from COVID-19, but managed to catch up operation and earnings pace in 2H20. In view of 2021 outlook, mgmt. expects business to resume normal, and guides double digit gas volume growth and normalized residential connection pace. We lift FY21E earnings by 4.2% to HK$5,993mn. Our TP is also lifted 7.1% to HK$45.0. We think CRG’s rich valuation had priced in gas volume rebound and earnings growth potential.
- FY20 results beat our estimates. CRG read revenue of HK$55.8bn, down 2.0% YoY. Gross profit was HK$15bn with GPM of 26.9%, up 2.0ppt YoY. We think CRG’s GP was a key element beat our estimates. Major expenses were largely in line, while share profit from JV surged 30.7% YoY to HK$657mn. CRG read net profit of HK$5.15bn, up 2.1% YoY and 10.5% higher than our previous estimates. The Company announced final dividend of HK$0.78 per share. This, together with interim dividend of HK$0.15, lifting full year dividend payout ratio by 2.7ppt to 40.3%.
- Double digit gas volume growth in 2021. Gas sales volume reached 29bcm in 2020, up 3.6% YoY. The Company managed to have gas volume rebounded by 12.6% in 2H20, after posting YoY gas volume decline in 1H20. Gas sales rebound was led by residential and industrial gas consumption, while commercial usage was still weak with full year volume decline of 5.4% YoY. Looking ahead in 2021, on the back of commercial activities recovery, mgmt. expects overall gas volume to resume double digit growth. We expect overall gas volume growth to reach 17.8% to 34.2bcm in 2021.
- Gas connection to resume normal. Residential connection declined 11.8% YoY to 2.9mn households in 2020. Mgmt. expects residential connection to resume normal at 3.2mn households in 2021, back to its regular connection pace in 2019.
- Shanxi Gas Group M&A will be a highlight. CRG budgeted HK$4.3bn for strategic M&A in 2021, of which c.HK$1.5-2bn will be prepared for Shanxi Gas Group. CRG plans to close the deal within 2021, and we expect target multiple will be at range of 15-20x P/E (Shanxi Project made net profit of c. RMB210mn in 2020). Other than Shanxi Project, we think CRG acquisition budget implies new project acquisition pipeline, which could be a boost on market sentiment.
- Lift FY21E earnings slightly by 4.2%. We lift CRG’s FY21E earnings by 4.2% to HK$5,933mn, while maintaining FY22E earnings largely unchanged. Our DCF TP is lifted slightly by 7.1% to HK$45 per share. CRG is currently trading at FY21E 17.4x forward P/E, 1 s.d. above average. We think CRG’s upside potential is priced in. Maintain HOLD.
