Beijing Enterprises Earnings: Both Results and DPS Are Disappointing, Fair Value Estimate Decreased

Beijing Enterprises Holdings’, or BEH’s, 16% drop in 2023 net profit to CNY 5.5 billion was 22% below our expectation, mainly attributable to weak earnings at its wholly owned subsidiary, Beijing Gas, and sharply higher interest expense. Its 2023 dividend per share, or DPS, of HKD 1.60, or 33.1% payout ratio, is also disappointing, which is flat from a year ago and implies a 39% fall in final DPS. This has dampened investor confidence and led to a sharp 22% share price decline following the result release. Our 2024-26 revenue assumptions are largely unchanged, but we lowered net profit forecasts by 3%-9% to reflect higher interest expenses as well as a higher operating cost assumption for the firm’s LNG project. As such, we cut our fair value estimate to HKD 34.50 per share from HKD 38.00. We think the March 28 selloff is overdone, with the shares currently trading at only 0.3 times price/book—a significant discount relative to its underlying assets. Assuming BEH keeps its 2024 DPS at HKD 1.60, it is still producing an attractive yield of 7.0%.