Company Reports

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.

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%.

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.

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.

We lower our fair value estimate of Beijing Enterprises Holdings, or BEH, to HKD 38.00 per share from HKD 39.50, after taking into account the impact of unfavorable exchange rates and a lower profit contribution from its 23%-owned associate, China Gas, amid a slower cost pass-through schedule. Nevertheless, we expect gas demand to remain robust, as China’s carbon-peak commitment will continue to promote the use of cleaner energy such as natural gas. We expect BEH’s public utility business to continue to deliver steady profit growth, and we forecast the company’s net profit to grow at a five-year CAGR of 6.2% between 2022 and 2027, down slightly from 6.5% in our earlier forecast. We believe the shares are currently undervalued, trading at only 0.4 times price/book—a significant discount relative to the value of its underlying assets. We think a further raise of dividend payout ratio will likely drive a rerating for the firm.

Beijing Enterprises Holdings' 28% year-over-year fall in first-half recurring net profit to HKD 3.9 billion slightly missed our expectations. The result was damped by higher interest expenses, unfavorable exchange rates, and disappointing profit contribution from 23%-owned associate China Gas. Nevertheless, management expects improving second-half performance as gas demand picks up and the dollar margin benefits from cost pass-through policies. We lowered our 2023 recurring net profit forecast by 4% to HKD 7.8 billion to incorporate the weaker-than-expected results. This implies a 5% fall from a year ago. We maintain our HKD 39.50 fair value estimate. We believe the shares are undervalued as of the Aug. 31 market close, trading at only 0.4 times price/book—a significant discount relative to the value of the underlying assets.

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.

Narrow-moat Beijing Enterprises’, or BEH’s, 4.5% year-over-year fall in 2022 recurring net profit to HKD 8.2 billion was 6.8% below our expectations, mainly due to sharply higher natural gas prices in the second half. The company was not able to pass through the cost, leading to a 2% squeeze to BEH’s gross margin to 13.3% in 2022. Nevertheless, as the natural gas price is normalizing, our midcycle outlook remains unchanged and our tweaks to our earnings forecast are minor. We maintain our fair value estimate at HKD 39.50, and we forecast the company’s net profit to rise 16% to HKD 8.8 billion in 2023, a 3% cut from our earlier estimate after updating the schedule of the Tianjin LNG project. We continue to believe the shares are undervalued currently, trading at only 0.4 times price/book—a significant discount relative to its underlying assets.

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.

Beijing Enterprises’, or BEH’s, 10.8% year-over-year growth in first-half 2022 recurring net profit to HKD 5.5 billion slightly beat our expectations, mainly attributable to better contribution from its Russian upstream business, boosted by higher oil prices and the appreciation of the ruble. Coupled with higher natural gas sales, profit contribution from gas operation was up 23.6% year over year. We raise our 2022 recurring net profit forecast by 10% to CNY 8.9 billion, after updating our oil prices and foreign exchange assumptions. Our midcycle outlook remains unchanged, and we retain our forecast that the company’s recurring net profit will grow at a five-year CAGR of 3.5% through 2021-26. Our fair value estimate is maintained at HKD 39.50 per share, and we continue to believe the shares are undervalued currently, trading at only 0.3 times of price/book—a significant discount relative to its underlying assets.

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.

Beijing Enterprises’, or BEH’s, 13.6% year-over-year growth in recurring net profit to HKD 8.6 billion was slightly higher than we expected, on higher natural gas sales and the rise in oil prices driving contribution from its Russian upstream business. However, the company’s dividend of HKD 1.25 per share was disappointing, which implies a payout ratio of 18.3% on recurring earnings per share. This is lower than the average of 20% payout ratio over the past five years, missing management's earlier guidance to raise the payout ratio.

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.

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 sustainable 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 sustainable and robust cash inflows. This underpins our narrow economic moat rating.

We lower our fair value estimate of Beijing Enterprises Holdings, or BEH, to HKD 39.50 per share from HKD 44.50, to reflect lower dollar margin on higher raw material cost, and a lower net profit forecast of its 22%-owned China Gas amid a lower new residential connection assumption due to a slowdown in China’s property sales. We think the shares remain undervalued, now trading at only 0.4 times 2021 price/book, a significant discount relative to the sum of its underlying assets. We think much of the concerns over slower growth and disappointing dividend payouts are already priced in.

Beijing Enterprises Holdings’ 29% year-over-year rise in recurring net profit to HKD 4.60 billion was in line with our expectations, with decent growth across major segments that include piped gas, water treatment, waste management and its brewery. This reflects a recovery from the coronavirus impact, with core profit returning to the prepandemic level as activity normalized. We maintain our earnings forecasts and fair value estimate of HKD 44.50 per share. We expect Beijing Enterprises' full-year recurring net profit to rise 10.20% to HKD 7.90 billion and grow at a CAGR of 7.10% between 2021 and 2025.

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. The government’s push to fight air pollution sees gas-fired power and heating plants replacing coal-fired power and heating systems in the city, which should drive sustainable 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 sustainable and robust cash inflows. This underpins our narrow economic moat rating.

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.

It appears fourth-quarter natural gas demand in Beijing is higher than anticipated and we lift our 2020 earnings estimate by 5% to HKD 7.6 billion for Beijing Enterprises, or BEH. We expect the positive momentum of strong gas sales to continue in the first quarter, driven by extreme weather conditions, but we note this trend is unusual. Our fair value estimate of HKD 48.50 per share is, thus, unchanged.

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.