UBS Group stated that it is cautious about Gas Stock outlook for next year and the year after, citing weak economic growth. It is expected that urban gas sales volume will increase by 3% year-on-year, which is lower than the 7% growth from 2021 to the present year. The firm assumes that the market share of city gas will shift towards wholesale gas, and although it anticipates sales gas profits to rise from 0.50 RMB per cubic meter last year to 0.55 RMB per cubic meter from this year to 2026, it will still be lower than the pre-pandemic figure of 0.60 RMB per cubic meter.

Moreover, the new gas connection volumes for the first half of the fiscal year 2024 for润燃 (01193.HK), 中燃氣 (00384.HK), and 煤氣 (00003.HK) have averaged a year-on-year decline of 15%, while 新奧能源 (02688.HK) saw a more significant year-on-year decrease of 19% in the first three quarters. The firm expects that the domestic property market will remain weak, and new connection volumes will further soften next year.

The firm also pointed out that Gas Stocks have underperformed the MSCI Chinese Index by 17% this year. Based on projected earnings per share growth of 4% for next year and the year after, it believes a forecast PE of 10 times next year is a reasonable valuation, as the average PE was only 15 times when EPS growth was 8% from 2013 to 2023. Based on faster gas sales growth than peers, it believes that润燃's valuation should return to a forecast PE of 13 to 15 times next year, in line with the historical average of 15 times.

The following table shows UBS Group's latest investment ratings and Target Prices for Gas Stocks.

Stock│Investment Rating│Target Price

润燃 (01193.HK)│Buy│30 RMB → 36 RMB

中燃氣 (00384.HK)│Buy│8.2 RMB → 7.9 RMB

新奧能源 (02688.HK)│Neutral│72 RMB → 62 RMB

Gas (00003.HK) │ Neutral │ Target Price 5.6 yuan → 6.1 yuan