The business situation is basically in line with expectations: CNPC released its annual report, with annual revenue of HK $6.44 billion, an increase of 32% over the same period last year, and the net profit attributed to the parent company was HK $400 million, up 28% from the same period last year. A diluted profit of HK $0.08 per share. Revenue and earnings are in line with our forecast of HK $6.5 billion / 400 million.

Natural gas sales were lower than expected, but the connection business performed strongly: the company's natural gas business was slightly lower than we expected. The company sold 2.25 billion square meters of gas for the whole year, an increase of 16% over the same period last year, slightly lower than our forecast of 20% growth. The income of residents / industrial and commercial gas / automobile gas increased by 9%, 16% and 30% respectively. The lower-than-expected industrial and commercial gas consumption is mainly due to the suppression of the demand of industrial users by the increase in gas prices. The number of newly connected households is 150000, which greatly exceeds our previous forecast of 120000. Overall, the sharp increase in the number of new connected users of the company makes the future sales of gas more secure.

Properly controlled expenses: the company's administrative expenses are HK $220 million, accounting for a record low of 4.3% of revenue, indicating that the scale effect of the company's natural gas sales is more significant.

The valuation advantage remains clear, maintaining the "overweight" rating: we remain unchanged from our 2014 / 2015 earnings per share forecast of HK $0.10 per share of HK $0.12. The current share price corresponds to 11.9 PE 10.2x in 2014 / 2015, a 50 per cent discount to the industry average. We believe that the current valuation of the company is unreasonably undervalued, maintaining the company's "overweight" rating, with a target price range of HK $1.80-2.00, corresponding to a PE of 18-20 times in 2014.