China Gas Utilities: Mixed Results From China Gas Holdings; Sector Recovery on Track

China Gas Holdings’, or CGH’s, first-half fiscal 2024 (ending March) net profit was down 44% year on year to HKD 1.8 billion. Stripping out other losses of HKD 538 million, this is largely in line with our expectations. After fine-tuning our earnings forecasts, we keep our fair value estimate of HKD 12.60. While the shares remain attractive, we think CGH needs to deliver consistent results improvement before it deserves a rerating. CGH has lowered guidance for a few segments, but this is not surprising and is similar to peers ENN Energy and China Resources Gas, or CRG. That said, it is clear that the dollar margin recovery for gas utilities is on track and this should continue to support earnings growth. We think the city gas sector is undervalued currently and our preferred pick is ENN Energy given the firm’s share buyback plan and potential in the integrated energy and value-added businesses.