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Research Report: Stock code:
  20-05-2013 (嚙瑾)    ChinaGas (0384.HK) - Target price has been reached, maintain `accumulate` rating
  18-03-2013 (嚙瑾)    ChinaGas (0384.HK) - Short-term investment requires adjustment and long-term depends on potential
  28-12-2012 (嚙踝蕭)    ChinaGas (384.HK) - Downstream business will rapidly expand
  17-12-2010 (嚙踝蕭)    CHINA GAS HOLDINGS LTD. (384.HK) -- Sales Growth Remains Strong, LPG Margin Will Improve
  11-03-2009 (嚙確)    China Gas Holdings Limited (384.HK) - Brighter it burns
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ChinaGas(0384)
20-05-13
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Recommendation on   20-05-13 
Recommendation Accumulate
Price on Recommendation Date $ 7.990
Suggested purchase price N/A
Target Price $ 9.170
Weekly Special - 601021.CH SPRING Airlines
Written by: Research Team
Tel:
+0086 (0)21 6351 2937

Email:
libin@phillip.com.cn

ChinaGas (0384.HK) - Target price has been reached, maintain `accumulate` rating

Company profile

China Gas Holdings Limited is a natural gas services operator listed on the Hong Kong Stock Exchange. It engages principally in investment, operation, and management of urban gas pipeline infrastructure, distribution of natural gas to residential and industrial users, construction and operation of oil stations and gas stations, and development and application of technologies related to oil and natural gas in mainland China. It has been named China's largest cross-regional urban gas distributor and gas operator integrating the distribution of pipeline-based natural gas and liquefied petroleum gas (LPG).

Investment Overview

For the year 2012, the Company reached an operation revenue of HK$18.934 billion, representing an increase of 19.4% when compared to HK$15.862 billion in 2011, and the net profit significantly increased by 52.4% to HK$954 million from HK$626 million in 2011; amount to a basic earnings per share for HK$0.22.

The sales revenue of pipeline gas business rose by 37.2% to HK$7.662 billion, and the proportion of the Company's total revenue increased to 40.5%. In 2012, the Company's total sales of natural gas reached 5.563 billion m3, up 25% over the previous year. Gases used for industrial, commercial, residential, and CNG automobile purposes respectively accounted for 66.6%, 11.5%, 12.7% and 9.2% of the Company's sales.

The Company's LPG business in 2012 recorded the sales revenue of HK$7.993 billion, increasing by 20.1%; the operating earnings turned from deficits to profit, growing from the loss of HK$22.4 million in 2011 to the profit of HK$80.7 billion. The LPG sales fell by 9.2% to 894,000 tons.

The "Twelfth Five-year" plan for natural gas has shown that the market-oriented pricing mechanism will be formed as soon as possible. It is expected that the upstream enterprises will raise the factory price of natural gas, while the end-user price of natural gas will not experience a sharp increase in the short period of time subject to the intervention of the government. Nevertheless, as residential users share a small share of the natural gas market, the influences from the government's price fixing policy will not be obvious, making the downstream distribution enterprises have somewhat pricing power. Management also expected to transfer additional costs to the end users in a timely manner.

A strategic cooperation framework agreement has been entered into between the Company and Sinopec, according to which a joint venture company will be set up to expand the LPG market and operate a gas pipeline project for large cities. We believe that the Company will benefit from the huge distribution network of Sinopec, by giving full play to which the future profit margin and market share of the Company's LPG business will have a big room for improvement. For natural gas business, Sinopec will also help the Company to build its distribution network, and ensure the upstream supply.

The Company's steadily increasing performance has lived up to our expectation, and its share price has also reached the target price that we have set previously. On the whole, we remain strongly optimistic about the Company's performance in 2013. All things considered, we raise the Company's six-month target price to HK$9.17 and maintain an "Accumulate" rating.

Financial Statements and Predictions

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