The close relationship with Petrochina will ensure the rapid growth of the company. China National Petroleum Gas (603.HK) is a rising star in domestic urban natural gas industry. The company operates urban natural gas mainly through CNPC Zhongtai, a joint venture company of Kunlun Energy under Petrochina Company Limited. At present, the company has obtained natural gas franchises in 54 cities in 14 provinces; in addition, the company also has rare long-distance pipeline assets among listed companies: the mid-year report shows that the company has a long-distance pipeline with a length of 872 kilometers and a transport capacity of 11.7 billion square meters.
The future growth potential ranks in the forefront of the industry: due to the following reasons, we believe that the growth potential of the company is higher than that of its peers: (1) the relationship and cooperation between the company and Petrochina Company Limited, Petrochina Company Limited has an adequate supply of gas to the company, and the company's gas sales are guaranteed. (2) the company has a large-scale long-distance pipeline, and the utilization rate is still very low. (3) the proportion of connection fee income of the company is relatively small, while the proportion of gas sales revenue is relatively large, so the sustainability of development is stronger. (4) the base of gas sales of the company is relatively small. We expect the compound growth rate of pipeline and downstream gas sales to reach 25% in the next three years, which is higher than the industry average of 17-18% and ranks first in the industry.
The increase in gate station prices has basically been transmitted: since July, the domestic increase in gas prices in the middle and upper reaches of the gate station has caused the market to worry about the reduction of gross profit in the urban gas industry, but as far as we know, as the price advantage of natural gas over alternative energy is still significant, the increase in doorman price has been basically completed.
Short-term negative factors have basically been diluted: CNPC shares have risen lower than the industry average this year, and we think there are two main reasons: first, the company reported a year-on-year growth of only 1% due to one-time securities investment losses. lower than market expectations. Secondly, the former chairman of PetroChina, a subsidiary of the company, was rumored to be involved in Petrochina Company Limited's corruption case. At present, the negative factors have been watered down, and investors will refocus on the fundamentals of the company.
The valuation is lower than the industry average, and the "overweight" rating is given for the first time: our model shows that the company's EPS from 2013 to 2015 is 0.08,0.10,0.12 yuan. The current share price corresponds to a 17.0x/13.5x of PE in 2013 / 2014, which is 35 per cent lower than the industry average. We believe that the current valuation of the company is unreasonably undervalued and give the company an "overweight" rating for the first time, with a target price range of HK $1.80-2.00, corresponding to a PE of 18-20 times in 2014.