20140506-大和证券-1Q14_gas_sales_growth_on_track_18页_1mb

报告摘要

Towngas China (1083 HK) Summary

Core Content

Towngas China (TCCL) is one of the leading city-gas distributors in China, with a focus on Sichuan, Shandong, and Liaoning provinces. The report highlights the company's positive outlook for 2014, driven by three main catalysts: an acceleration in gas sales growth for the first quarter of 2014, a potential asset injection from its parent company Hong Kong & China Gas (HKCG), and new natural gas sources from CNPC and Russia. The analyst reiterates a Buy rating with a target price of HKD11.1, which represents a 25.3% upside from the 2 May 2014 price of HKD8.86.

Main Views

Gas Sales Growth:
- TCCL's gas sales volume in 1Q14 increased by 20% YoY, up from <15% YoY in 1Q13.
- The company expects faster growth in high-margin regions like Shandong and Liaoning, which should increase its unit-dollar margin for 2014.
Asset Injection:
- The analyst expects an asset injection from HKCG in 2014 as the PER valuation gap between HKCG and TCCL has narrowed from 60% in 2013 to 30% currently.
- This is seen as a key driver for TCCL's growth, similar to how China Resources Gas (CR Gas) grew through asset injections.
Geographical Expansion:
- The "Gasify Liaoning" campaign ensures high gas sales growth in Liaoning, with 28bcm of natural gas to be supplied in 2014-15.
- The company expects 38bcm of gas imports from Russia by 2017, further supporting growth in the northeast region.
- TCCL's 35% of total investments are in the northeast, positioning it well for a >30% CAGR in gas sales over the next 5 years.
Earnings and Valuation:
- The company is forecasted to have a 21% net profit CAGR for 2013-16, higher than its peers' 13-19%.
- The current 2014E PER is 17x, lower than its peers' 17-24x, which the analyst deems unjustified.
- The analyst maintains a DCF-based 6-month target price of HKD11.1.

Key Information

Financial Highlights (2014E)

Metric	Value (HKDm)
Revenue	8,773
Operating Profit	1,479
Net Profit	1,377
Core EPS (Fully Diluted)	0.526
DPS	0.103
PBR	1.5
EV/EBITDA	10.4
ROE	11.5%
ROIC	6.3%
Net Debt to Equity	29.0%
Effective Tax Rate	23.9%

Forecast Revisions (2014E)

Metric	Forecast (%)
Revenue Change	4.3
Net Profit Change	-7.8
Core EPS (FD) Change	-8.0

Share Price Performance

Metric	Value
12-month range	6.78-10.12
Market Cap (USDbn)	2.98
3m Avg Daily Turnover (USDm)	4.74
Shares Outstanding (m)	2,610
Major Shareholder	HKCG (62.4%)

Asset Injection History

Date	Projects	Stake Acquired	Consideration (HKD)
Dec-06	10 projects in Shandong and Anhui	45%	4.18
Mar-10	6 projects in Liaoning and Zhejiang	56.4%	3.55
Nov-10	Cash purchase of 250m existing shares	66.5%	3.63

Key Ratios

Ratio	2013	2014E	2015E	2016E
Sales (YoY)	29.6%	30.6%	27.5%	21.3%
EBITDA (YoY)	27.3%	24.8%	13.8%	21.0%
Operating Profit (YoY)	29.6%	26.3%	13.1%	22.9%
Net Profit (YoY)	31.6%	24.4%	19.1%	20.0%
Core EPS (YoY)	24.2%	24.2%	19.1%	20.0%
Gross-Profit Margin	15.9%	15.2%	13.3%	13.5%
EBITDA Margin	22.4%	21.4%	19.1%	19.0%
Operating-Profit Margin	17.4%	16.9%	15.0%	15.2%
Net Profit Margin	16.5%	15.7%	14.7%	14.5%
ROE	9.6%	10.5%	11.5%	12.5%
ROIC	5.9%	6.3%	6.6%	7.5%

Strategic Implications

The unit margin spread is expected to increase due to higher growth from high-margin areas and flat growth from low-margin areas.
TCCL's unit dollar margin is forecasted to rise from CNY0.14/m³ in 2008 to CNY0.33/m³ in 2014E.
The gas sales growth in Sichuan and Chengdu is expected to be stagnant due to mature natural-gas penetration (above 70%).

Risks

The main risk to the Buy rating is a margin squeeze on commercial and industrial (C&I) gas.

Conclusion

The analyst believes that TCCL is well-positioned for sustained growth and margin expansion due to its focus on high-margin regions and potential asset injection from HKCG. The current PER is considered undervalued compared to its peers, and the target price remains HKD11.1. The gas sales growth is expected to accelerate, and the company's net profit is forecasted to grow at a higher rate than its peers. The analyst's view is supported by positive financial performance and strategic initiatives.