BEH’s 2020 Results Missed; Expecting Recovery in 2021

Beijing Enterprises Holdings’, or BEH’s, 11% drop in recurring net profit to HKD 7.2 billion slightly missed our expectations, with weakness across major segments. This marks the first profit decline over the past 10 years for the conglomerate, reflecting the pandemic impact. Overall, we expect activity to normalize in 2021 from the pandemic disruptions but we note that BEH’s 40% held Shaanxi-Beijing pipeline has witnessed some unfavorable changes, with rising demand from short-haul transmission. This led to a 23% fall in unit profit contribution, and the change is likely structural, according to management. We tweak our earnings forecasts to factor in a lower contribution from the Shaanxi-Beijing pipeline, and we forecast BEH’s net profit to rise 50% to HKD 7.9 billion in 2021, a 6% cut from our previous forecast. Accordingly, we lower our fair value estimate to HKD 44.50 per share, from HKD 48.50.