JPMorgan's report pointed out that the performance of China Gas Holdings in the first half of the year once again confirmed the bank's positive view on the industry. The gas volume has been steadily increasing (up more than 5% annually), and the profit margin and free cash flow have improved. Although the decline in new connection business was larger than expected, with XinAo (02688.HK) and RunRan (01193.HK) seeing a year-on-year decline in profits of 30% to 50%, the fact that the average contribution of new connection business to the industry's profits in 2024 and 2025 is less than 15% to about 10% means that the future profitability will be better. In addition, most gas companies have committed to stable or increasing dividends, making the gas stocks attractive in terms of yield.

Under the deflationary pressure in China, the bank expects gas stocks to benefit from improved profit prospects, cash flow, and regulatory environment. Among the industry, the bank prefers RunRan, believing that its performance in the first half of the year is strong and estimated to outperform peers within the next three months. It also sees the largest upside potential for XinAo in the next 12 months, believing that the market's concerns about its sales growth and corporate governance are excessive, and sets the target price at 65 yuan with a 'buy' rating. The bank has also lowered the target price for China Gas (00384.HK) from 6.75 yuan to 6.5 yuan, maintaining a 'neutral' rating.