BEH’s Tepid First Half Results in Line; Expecting Earnings Recovery in Second Half

Beijing Enterprises Holdings' 20% year-over-year drop in first-half recurring net profit to HKD 3.6 billion, with weakness across major business segments, was no surprise, reflecting the pandemic impact. However, profit contribution of HKD 310 million from its Russia oil and gas associate VCNG was more resilient than expected, despite the collapse in Brent crude prices during the period. Further earnings recovery is expected in the second half, with positive momentum from higher natural gas sales volume on seasonal winter demand. Management expects 5% year-over-year growth in gas sale volume in the second half, supported by adequate natural gas supply, as well as more buoyant demand for gas-fired power in order to make up for Huaneng Power’s planned shutdown of two coal-fired power units in Beijing this year. We raise our full-year 2020 net profit forecast by 5.5% to HKD 7.3 billion, after incorporating higher profit contributions at VCNG, but maintain our Brent price forecast of USD 60 per barrel. Our fair value estimate of HKD 48.50 remains.