Established in 1862, Hong Kong Zhonghua Gas Co., Ltd. is the first public utility company in Hong Kong. After more than 160 years of development, the company has grown from a simple natural gas company to the current leading enterprise in China's energy industry. Currently, the company's business projects include smart energy, urban pipeline gas, upstream and midstream projects, tap water supply and sewage treatment, urban waste resource utilization, natural gas filling stations, and emerging environmentally friendly energy sources. In addition to Hong Kong, the company covers 28 provinces, autonomous regions and municipalities directly under the Central Government of the Mainland. Since it first developed with fewer than 5,000 customers in the mainland, it has now owned more than 600 energy projects in mainland China.

Gas sales and related businesses are the company's core business, including natural gas sales, gas reporting services, and gas appliance sales and maintenance services. In 2023, the company's gas sales were HK$42,518 billion, accounting for 74.63% of total turnover, a slight increase over previous years.

Since the company expanded its business to the mainland, the share of mainland business revenue has gradually increased. The company's business focus has shifted to the mainland, and the mainland's business revenue share has remained around 75% in recent years.

In 2023, the company's sales revenue in mainland China and other regions was HK$44.982 billion, accounting for 78.95% of total turnover, a slight decrease from 2022.

The company's overall performance in recent years has shown a fluctuating upward trend. The total revenue CAGR for 2014-2023 was 7.83%. The company's total revenue in 2022 and 2023 was HK$60.953 billion and HK$56.971 billion respectively, +13.80% and -6.53% year-on-year respectively. In 2022, due to the impact of the COVID-19 pandemic and geopolitics, factors such as a slowdown in global economic growth, soaring multiplier rates, and rising energy prices had an objective negative impact on the company's performance. However, thanks to the Group's efforts to increase gas autonomy and the smooth development of local businesses, the overall performance remained stable.

Profit forecasts and investment suggestions:

We expect the company's main revenue for FY24-26 to be HK$597.77/624.46/64.947 billion, respectively, and the corresponding net profit to mother is HK$62.98/65.13/HK$6.713 billion. Based on the DCF model, the estimated target price is 6.39 HKD/share, which for the first time covered gives it a “superior to market” rating.

Risk warning:

1. Natural gas policy risks;

2. Risk of natural gas price fluctuations;

3. Risk that terminal demand falls short of expectations