BEH's Focus on Natural Gas Operation to Benefit From China's Promotion of Cleaner Energy

Founded in 1997, Beijing Enterprises Holdings is the listed flagship of the Beijing municipal government, with a strategic focus on public utilities. It has a monopoly position in Beijing’s natural gas distribution, owns unparalleled gas transmission and distribution networks in Beijing, and controls 40% of the Shaanxi-Beijing pipelines, the major source of natural gas supply for Beijing and northern China. It has a unique customer mix, with gas-fired power and heating plants the most prominent demand segments, allowing the company to benefit from a favorable policy environment. With the production of natural gas involving fewer emissions compared with coal, we think China will continue to encourage the use of natural gas, which should drive maintainable and robust gas demand. We think BEH's key strength is its high-quality, well-located gas network with monopoly operation, providing the company with maintainable and robust cash inflows. This underpins our narrow economic moat rating.