Yum Cha 飲茶€¦ · construction, and management said the capacity expansion was on track. The Company will also expand upstream capacity in the fabric segment in Vietnam and

1

Yum Cha 飲茶 March 16, 2018

INDICES Closing DoD%

Hang Seng Index 31541.1 0.3

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Shanghai COMP 3291.1 (0.0)

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Gold 1316.3 (0.6)

BDIY 1169.0 (0.8)

Crude Oil, WTI(US$/BBL) 61.2 0.4

Crude Oil, BRENT(US$/BBL) 65.1 0.4

HIBOR, 3-M 1.1 (0.3)

SHIBOR, 3-M 4.7 (0.1)

RMB/USD 6.3 0.1

RESEARCH NOTES

EMPEROR WATCH & JEWELLERY [887.HK, HK$0.450, NOT RATED] - The 2017 results of Emperor Watch & Jewellery (EWJ) is an another example showing that high-end luxury retail market in Hong Kong has recovered. The Company’s performance in Jan-Feb 2018 is even more encouraging, as SSSG growth was in the mid-30% range. We believe the operating lever-age will become more visible in 2018. The Company has been long forgotten by the market, but we believe the results may attract investors’ attention again. We reiterate our positive view on other Hong Kong-based retailers based on the solid results and bullish outlook of EWJ.

CHINA GAS [0384.HK; HK$24.35; NOT RATED] - During a lunch presentation with us this week, management of China Gas showed confidence in achieving its full-year target for gas sales volume growth and new residential connections. The Company’s operating regions were not affected by the gas supply disruptions in late 2017. Management remains positive about the growth outlook of the replacement of coal with gas projects in towns and villages in North China (RCG). Although the dollar margin of gas sales declined by about RMB0.03/m3 in 2HFY18, man-agement believes the impact will be offset by volume growth. The Company is trading at 16.7x FY19E PER, which does not look excessive compared with the high-end of the five-year range (>20x), as it is likely to deliver >20% EPS growth in FY19.

DATA RELEASES DUE THIS WEEK

March 19 China February Property Prices

Source: Bloomberg

SNIPPETS

Crystal International [2232.HK; HK$8.00; NOT RATED] - 2017 results presentation key takea-

ways. We joined Crystal International’s (Crystal) 2017 results presentation yesterday. One of the

key questions raised during the presentation was whether there was any impact from recent raw

material cost increases. Crystal management said it expected no major margin pressure, as the

Company had locked in raw material costs for 6-12 months. Crystal management believes that

there is room for margin improvement through a high level of automation, relocation of produc-

tion to lower-cost regions, and better cost control. Management mentioned that customers are

accelerating their consolidation to streamline the supply chain, and that it expects to gain market

share in the coming 5-10 years, as the industry is so fragmented. Crystal has five plants under

construction, and management said the capacity expansion was on track. The Company will

also expand upstream capacity in the fabric segment in Vietnam and has acquired land for a

plant. The total investment in the fabric plant is estimated to be HK$400m. Crystal management

highlight that 2017 was the first year the Company took control on the sportswear business,

which achieved turnover of US$216m. Management guided accelerated growth in the sports-

wear segment in 2018 and 2019 vs. 2017. Management also guided stronger-than-expected

order inflow and said the Company’s top line is expected to be faster than industry growth.

Based on market consensus, Crystal is now trading at about 14x 2018 PER, which is not partic-

ular cheap compared with the industry average. We understand that Crystal is a quality garment

manufacturer and doesn’t look expensive compared with Shenzhou [2313.HK]. Some investors

may think that Crystal offers an opportunity, as: a) it has a reasonable valuation in the supply

chain, b) Fast Retailing & L Brands are cornerstone investors, and c) its shares are at a deep

discount to Shenzhou’s. However, we maintain the view that it will take for time Crystal to show

the results of vertical integration (Shenzhou is already a proven case) and market position in the

sportswear segment, which is a growing area in the overall textile & garment supply chain. At

this stage, we don’t see a major catalyst for the market to re-rate Crystal and the valuation dif-

ference between Crystal and Shenzhou to narrow.

We still prefer Texhong Textile [2678.HK], which will also benefit from vertical integration and is

trading at a discount to the sector. Texhong is one of the largest jeanswear manufacturers in the

region. Downstream expansion is one of the long-term growth drivers of the Company. Despite

concern about the margin trend, we don’t expect to see major volatility in Texhong Textile’s net

profit going forward, given management’s strategy of concentrating on niche products and

downstream diversification. We have a BUY rating on Texhong Textile, with a target price of

HK$13.90.

2

COMPANY UPDATE

Analyst: Tony Li, CFA ([email protected]; Tel: (852) 3698 6392 )

EMPEROR WATCH & JEWELLERY [887.HK, HK$0.450, NOT RATED] – A TURNAROUND STORY FOR LUXURY RETAIL

Market Cap: US$395m; Free Float: 47.2%

EMPEROR WATCH & JEWELLERY [887.HK, NOT RATED] Summary. The 2017 results of Emperor Watch & Jewellery (EWJ) is an

another example showing that high-end luxury retail market in Hong Kong

has recovered. The Company’s performance in Jan-Feb 2018 is even more

encouraging, as SSSG growth was in the mid-30% range. We believe the

operating leverage will become more visible in 2018. The Company has

been long forgotten by the market, but we believe the results may attract

investors’ attention again. We reiterate our positive view on other Hong

Kong-based retailers based on the solid results and bullish outlook of EWJ.

The Company. Founded in 1940s, EWJ is a Hong Kong-based luxury watch

and jewellery retailer with watches accounting for approximately 80% of

revenue. It is one of Hong Kong’s leading distributors of high-end watch

brands, such as Rolex, Cartier and Patek Philippe. Yeung Sau Shing,

Albert’s family trust is the largest shareholder, with a 52.76% stake.

Visible Exposure to Hong Kong’s High-End Luxury Retail. As at the end

of 31 December 2017, EWJ had 24 stores in Hong Kong and 46 in mainland

China. The Company has a significant presence in Hong Kong’s prime retail

locations, namely Russell Street, Causeway Bay and Canton Road, Tsim

Sha Tsui. The stores located there are usually the best performing stores

and help enhance Emperor’s bargaining power with suppliers (such as

Rolex SA). Some of the stores in these prime locations are leased from a

sister company, Emperor International [163.HK], which is also owned by Mr.

Albert Yeung. The Company explained that this arrangement provides

stability in rental arrangements, but details for the arrangement have to be

announced to provide clarity.

2017 Turnaround with Strong 2H 2017 Performance. EWJ’s NPAT in

2017 was HK$159.7m. This is a huge improvement compared to 2016, in

which it had a loss of HK$64.8m. EWJ had recorded losses before taxes

since 1H 2015, as the retail market in Hong Kong started to turn sour as

early as 2014. As consumer sentiment recovered in late 2016, EWJ started

to record a profit in 2H 2016, and the operating leverage became more

obvious in 2H 2017.

The turnaround in 2017 can be attributed to: (1) improvement in revenue,

with an increase in both ASP and volume for watches, as consumers were

willing to buy more expensive models; (2) improvement in GPM, as smaller

discounts had to be offered since customers were less price-sensitive; and

(3) improved operating leverage, thanks to lower lease payments.

Bullish Outlook for 2018 Given 30%+ YTD SSSG. Management attributed

the strong performance in 2017 to recovering retail sentiment and the wealth

effect in Hong Kong, and it expects this to be carried forward to 2018.

Specifically, SSSG for Jan-Feb 2018 was in the mid-30% range, which is an

encouraging sign of robust consumer demand for high-end watches and

jewellery. As pricing power for EWJ has been strengthened, it expects its

GPM to remain at a similar level (26.7% in 2017)

While sales growth in Hong Kong was solid, management expects rental

levels in Hong Kong to remain flattish, especially for street-level stores. It

noted that there are still vacant properties in some prime locations, so

landlords prefer to be conservative.

Source: Bloomberg

March 16, 2018

As for business outside Hong Kong, besides opening more stores in

mainland China (9 stores in 1H 2018), the Company will expand in

Southeast Asia. The region proved to be resilient, as suggested by

the EWJ Singapore’s performance (revenue up 43% YoY). EWJ

opened a store in Kuala Lumpur in 2018 and is seeking opportunities

to open more stores in other ASEAN countries.

Net Cash of HK$1.6bn Ready for Expansion. As at the end of

2017, EWJ had cash of HK$1.6b and was debt free. Because of the

expansion plan, EWJ plans to spend HK$400-500m to open new

stores (including refurbishment and inventory), and will stock more

inventory to cope with customer demand.

Valuation. After share price jumped >18% on 15 Mar 2018, EWJ is

now trading at 19.4x 2017 PER. EWJ announced a final DPS of

HK$0.58, making the total DPS for FY 2017 HK$0.75 per share,

equivalent to a 1.67% dividend yield. If ballpark EPS growth of 30%

for 2018E is assumed, then EWJ is trading at 14.9X 2018E PER. The

valuation should be similar to that of other Hong Kong-based

jewelers, but earnings growth could be even higher than that of the

larger players, given the more visible operating leverage, in our view.

(continued on next page)

HKD 2014 2015 2016 2017

Revenue (m) 5,925 4,431 3,642 4,075

COGS (m) (4,436) (3,325) (2,733) (2,986)

Gross profit (m) 1,489 1,106 909 1,089

Gross margin (%) 25.1 25.0 25.0 26.7

EBIT (m) 166 (115) (64) 172

Net profit (m) 138 (120) (65) 160

Net margin (%) 2.3 (2.7) (1.8) 3.9

EPS 0.02 (0.02) (0.01) 0.02

ROE (%) 3.12 (2.75) (1.53) 3.74

Dividend yield (%) 1.3 0.00 0.00 1.67

PER (x) 22.5 N/A N/A 19.4

PBR (x) 0.7 0.7 0.7 0.7

0

5

10

15

20

25

30

0.2

0.25

0.3

0.35

0.4

0.45

0.5

(HK$ million)(HK$)

Turnover (RHS) Price (LHS)

3

COMPANY UPDATE



Risks: (1) Weaker-than-expected tourist arrivals and retail sales in Hong Kong; (2) higher-than-expected staff costs; and (3) higher-than-expected

rental expenses in 2018.

March 16, 2018

Sources: Company, CGIS Research estimates

Figure 1: 2017 Results Review

Figure 2: Revenue Breakdown by Segment and KPIs

Sources: Company, CGIS Research

HK$'000 1H 2016 2H 2016 FY2016 1H 2017 2H 2017 FY2017FY2017 vs

FY2016

Revenue 1,674,853 1,966,992 3,641,845 1,827,220 2,247,904 4,075,124 11.9%

Cost of sales -1,257,712 -1,475,160 -2,732,872 -1,339,955 -1,645,925 -2,985,880 9.3%

Gross profit 417,141 491,832 908,973 487,265 601,979 1,089,244 19.8%

Gross Margin 24.9% 25.0% 25.0% 26.7% 26.8% 26.7% 1.8 ppt

Other income 3,644 2,456 6,100 4,034 3,759 7,793 27.8%

Selling and distribution expenses -407,489 -404,907 -812,396 -378,964 -397,268 -776,232 -4.5%

Administrative and other expenses -78,962 -83,558 -162,520 -72,009 -75,559 -147,568 -9.2%

Profit (loss) before tax -65,666 5,823 -59,843 40,326 132,911 173,237 N/A

Taxation -2,965 -2,013 -4,978 -1,209 -12,337 -13,546 172.1%

Profit (loss) for the year -68,631 3,810 -64,821 39,117 120,574 159,691 N/A

Net Profit Margin -4.1% 0.2% -1.8% 2.1% 5.4% 3.9% 5.7 ppt

EPS (HK$) -0.0100 0.0000 -0.0100 0.0057 0.0175 0.0232 N/A

Revenue (HK$m) FY2015 FY2016 FY2017

YoY

Change

for 2017

By Product Segement

Watch 3,541 2,857 3,239 13.4%

Jew ellery 890 785 836 6.5%

Diamond & Jade 588 467 501 7.3%

Others 302 318 335 5.3%

Total 4,431 3,642 4,075 11.9%

By Geographical Segment

HK 3,457 2,797 3047 8.9%

Macau 287 211 234 10.9%

China 414 373 420 12.6%

Singapore 273 261 374 43.3%

Total 4,431 3,642 4075 11.9%

KPIs

Same Store Sales Grow th (Overall) -28.1% -14.20% 15.10%

Same Store Sales Grow th (Hong Kong) -28.6% -13.20% 14.30%

Store Rental / Revenue 15.2% 12.90% 10.40%

Store Staff Cost / Revenue 4.2% 4.80% 4.70%

4

COMPANY UPDATE



March 16, 2018

Figure 3: ASP & Volume Breakdown


Figure 4: Store Network—As at 31 December 2017


FY2015 FY2016 FY2017

YoY

Change

for 2017

Volume Sold (pieces)

Watch 48,306 35,789 37,527 4.9%

Jew ellery (Diamond and Jade) 24,501 24,850 25,074 0.9%

Jew ellery (Others) 75,416 84,306 82,250 -2.4%

ASP (HK$)

Watch 73,305 79,821 86,301 8.1%

Jew ellery (Diamond and Jade) 24,003 18,808 20,001 6.3%

Jew ellery (Others) 4,000 3,769 4,080 8.3%

1 Baume & Mercier 15 Mido 1 Baume & Mercier 15 Vacheron Constantin 1 Cartier

2 Bedat & Co 16 Omega 2 BVLGARI 16 Zenith 2 Patek Philippe

3 Bell & Ross 17 Officine Panerai 3 Carl F. Bucherer 3 Rolex

4 Blancpain 18 Parmigiani 4 Chopard 4 Tudor

5 Breguet 19 Patek Philippe 5 Franck Muller

6 Cartier 20 Piaget 6 Girard‐Perregaux

7 Certina 21 Rado 7 Jaeger‐LeCoultre

8 Chopard 22 Rolex 8 Montblanc

9 Franck Muller 23 Tag Heuer 9 Omega

10 Girard‐Perregaux 24 Tissot 10 Piaget

11 Hamilton 25 Tudor 11 Rado

12 IWC Schaffhausen 26 Vacheron Constantin 12 Rolex

13 Jaeger‐LeCoultre 27 Zenith 13 Tag Heuer

14 Montblanc 14 Tudor

Hong Kong Mainland China Singapore

Figure 6: Brands Distributed by EWJ


Single-

brand

Watch Only

Multi-brand

Watch

with/without

Jewellery

Jewellery

OnlyTotal Total Average

Hong Kong 7 7 10 24 94,018 3,917

Macau 2 2 2 6 7,994 1,332

Mainland China 5 2 37 44 33,422 760

Singapore 4 - 2 6 4,988 831

Total 18 11 51 80 140,422 1,755

Number of Stores Floor Area (sq.ft.) HK$'000 FY2015 FY2016 FY2017

Hong Kong 572,699 377,583 330,597

Macau 14,243 12,735 12,583

Other Regions in Asia Pacific 86,893 78,894 79,847

Unallocated 8,746 8,638 8,638

Total 682,581 477,850 431,665

Figure 5: Rental Expenses Breakdown—by Region


5

COMPANY UPDATE



March 16, 2018

Figure 7: Illustration of EWJ’s Select Store Locations in Prime Commercial Areas


6

COMPANY UPDATE



March 16, 2018

Figure 8: Peers Comparison

Sources: Bloomberg, CGIS Research estimates for covered companies

Company Ticker Trading Price Mkt Cap

Currency US$m FY0 FY1 FY2 FY0 FY1 FY2 FY0 FY1 FY2 FY0 FY1 FY2

Our Coverage

Chow Tai Fook Jew ellery 1929 HK HKD 8.99 11,465 29.38 21.91 19.58 2.87 2.96 2.74 11.32 13.88 14.45 2.45 2.74 2.55

Luk Fook Holdings Intl Ltd 590 HK HKD 27.55 2,063 15.92 14.09 12.84 1.75 1.72 1.62 12.37 11.94 12.60 2.72 4.17 4.17

Chow Sang Sang Hldg 116 HK HKD 17.60 1,520 16.06 14.20 11.65 1.26 1.25 1.17 8.38 8.81 10.27 2.50 2.68 3.26

Simple Average 20.45 16.73 14.69 1.96 1.98 1.85 10.69 11.54 12.44 2.56 3.20 3.33

Peers Listed in Hong Kong

Emperor Watch & Jew ellery 887 HK HKD 0.45 395 19.38 - - 0.71 - - 3.74 - - 1.67 - -

Hengdeli Holdings Ltd 3389 HK HKD 0.41 242 - - - 0.28 - - -10.40 - - - - -

Oriental Watch Holdings 398 HK HKD 2.08 151 20.43 - - 0.54 - - 2.67 - - 1.15 - -

Tse Sui Luen Jew ellery Intl 417 HK HKD 2.11 66 17.94 - - 0.49 - - 2.80 - - 2.52 - -

Simple Average 19.25 - - 0.50 - - -0.30 - - 1.65 - -

Peers Listed in A-share

Lao Feng Xiang Co Ltd-A 600612 CH RMB 42.91 2,919 19.50 18.34 15.81 4.15 3.89 3.37 22.53 22.51 22.00 2.33 2.36 2.44

Shanghai Yuyuan Tourist-A 600655 CH RMB 9.87 2,245 26.64 19.35 17.02 1.29 - - 5.10 6.60 7.10 1.01 1.01 1.01

Chow Tai Seng Jew ellery Co-A002867 CH RMB 32.26 2,440 30.43 25.60 20.71 8.02 5.73 4.70 28.09 25.73 25.39 1.86 1.61 1.92

Guangdong Chj Industry Co-A 002345 CH RMB 10.75 1,541 33.76 33.59 28.74 2.88 2.95 2.73 8.98 8.41 9.19 0.93 0.37 0.43

Zhejiang Ming Jew elry Co-A 002574 CH RMB 6.88 575 48.75 38.22 52.92 1.16 1.16 1.14 2.40 3.06 2.12 0.73 1.02 0.73

Simple Average 31.82 27.02 27.04 3.50 3.43 2.99 12.69 13.26 13.16 1.18 1.27 1.31

International Peers

LVMH Moet Hennessy MC FP EUR 244.35 153,117 23.93 21.96 20.17 4.26 3.80 3.41 18.57 18.11 17.86 2.05 2.24 2.43

Cie Financiere Richemont CFR SW CHF 83.74 50,850 24.59 23.11 20.72 2.80 2.51 2.37 11.21 10.80 11.40 2.15 2.55 2.79

Tiffany & Co TIF US USD 101.02 12,555 25.82 24.65 22.36 3.98 3.84 3.56 15.37 15.81 16.93 1.98 1.95 2.02

Pandora A/S PNDORA DC DKK 603.00 11,256 11.61 10.69 9.64 10.15 8.99 7.28 86.68 82.13 80.91 2.99 4.18 4.60

Signet Jew elers Ltd SIG US USD 38.22 2,312 5.85 7.65 8.18 0.92 1.01 0.91 19.59 12.00 9.78 3.87 3.47 3.70

Simple Average 18.36 17.61 16.21 4.42 4.03 3.51 30.29 27.77 27.38 2.61 2.88 3.11

Div YIeld(%)PER(x) PBR(x) ROE(%)

7

COMPANY NEWS

Analyst: Wong Chi Man, CFA ([email protected]; Tel: 852 - 3698 6317)

CHINA GAS [0384.HK; HK$24.35; NOT RATED] - LUNCHEON TAKEAWAYS: ON TRACK TO REACH FULL-YEAR TARGET

Market Cap: US$15,430m; Free Float: 32.1%

Summary. During a lunch presentation with us this week, management of China Gas showed confidence in achieving its full-year target for gas sales volume growth and new residential connections. The Company’s operating regions were not affected by the gas supply disruptions in late 2017. Management remains positive about the growth outlook of the replacement of coal with gas projects in towns and villages in North China (RCG). Although the dollar margin of gas sales declined by about RMB0.03/m3 in 2HFY18, management believes the impact will be offset by volume growth. The Company is trading at 16.7x FY19E PER, which does not look excessive compared with the high-end of the five-year range (>20x), as it is likely to deliver >20% EPS growth in FY19.

Comfortable in meeting the full-year target. For FY18 (March year-end), the Company has set the following business targets: (i) growth of gas sales volume in city gas projects of >35% YoY; (ii) residential connections reaching 3.8m households; (iii) growth in gross profit from value-added services of >100% YoY. Based on the performance in the first 11 months of FY18, management is confident in achieving the targets and sees the potential to exceed them.

Not affected by gas supply disruptions in late 2017. In late 2017, there were gas supply disruptions in north China because of a supply reduction from central Asia and a delay in the start of operations in Sinopec’s (0386.HK) LNG receiving terminal in Tianjin. Unlike some smaller players, the Company’s operating regions were not affected by the supply disruptions. The gas supply disruptions have been largely resolved after the authorities’ coordination.

Potential for RCG projects remains huge. For FY19, the Company has set a connection target of 2m rural households (FY18: 1.1m). China Gas has already secured 3.5m-3.6m contracted households, so the Company should be able to achieve the 2m target comfortably. Gas sales volume to RCG projects currently accounts for only 2%+ of its total gas sales volume, so management sees a lot of potential to boost gas sales volume. In the next few years, the Company’s RCG projects will focus on north China, including Hebei, Shandong, Shangxi, Henan and Tianjin. In the medium term, China Gas will also expand its RCG projects to other provinces in the northern half of China.

Trade-off between dollar margin and gas volume growth. In 2HFY18, management expects to see a contraction of about RMB0.03/m3 for gas sales dollar margin (previously about RMB0.6/m3) due to the time lag for the cost pass-through and discounts to some large volume industrial users to attract them to switch from coal to gas. Management expects the dollar margin to decline RMB0.02/m3 each year in the coming two years, but the overall impact should be positive because of the strong volume growth from these industrial users.

March 16, 2018

Source: Bloomberg consensus, Company Data

CHINA GAS

FY18 results announcement in June should be the next catalyst. The Company is trading at 16.7x FY19E PER, which is higher than that of its peers, like ENN (2688.HK) and CR Gas (1193.HK). But we believe this does not look excessive compared with the high end of the five-year range (>20x), given its higher EPS growth than its peers’. We believe the results announcement in June will be a potential catalyst. There is potential for the Company to raise its FY19 business targets, such as gas sales volume growth (currently 25%+). Then more investors will expect the Company to deliver >20% EPS growth for FY19 and will be willing to pay a higher valuation .

HK$ (Y/E March 31) 2016 2017 2018E 2019E

Revenue (m) 29,497 31,993 42,566 51,531

COGS (m) (22,283) (23,616) (31,413) (38,025)

Gross profit (m) 7,214 8,377 11,152 13,506

Gross margin (%) 24 26 26 26

EBIT (m) 4,536 5,735 8,358 9,804

Net profit (m) 2,273 4,148 6,109 7,361

Net margin (%) 8 13 14 14

Core net profit 3,716 4,475 n.a. n.a.

EPS 0.46 0.85 1.21 1.46

Core EPS 0.75 0.91 n.a. n.a.

ROE (%) 12.54 21.60 26.06 25.76

Dividend yield (%) 0.82 1.25 1.67 1.98

PER (x) (Core EPS) 32.5 26.8 19.9 16.7

PBR (x) 6.6 4.8 4.3 3.7

0

100

200

300

400

500

600

0

5

10

15

20

25

30

Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18 Mar-18

(HK$ million)(HK$)

Turnover (RHS) Price (LHS)

8

Figure 1: China Gas’ city piped gas sales volume


Figure 5: China Gas’ gross profit breakdown (1HFY18)


Figure 2: China Gas’ new residential connections


Figure 3: China Gas’ LPG sales volume

2,413,308

3,103,404

3,699,000

4,300,000

4,800,000

5,500,000

28.6%

19.2%

16.2%

11.6%

14.6%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

4,500,000

5,000,000

5,500,000

6,000,000

FY15 FY16 FY17 FY18E FY19E FY20E

LPG sales volume (tonnes) YoY change


Figure 4: China Gas’ city piped gas sales breakdown (1HFY18)


6,753 7,295

8,473

11,439

14,299

17,873

8.0%

16.2%

35.0%

25.0% 25.0%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

FY15 FY16 FY17 FY18E FY19E FY20E

Gas sales volume in city projects (m cubic meters) YoY change (RHS)

2,100,256

2,564,943

3,800,000

4,500,000

5,000,000

22.1%

48.2%

18.4%

11.1%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

4,500,000

5,000,000

5,500,000

FY16 FY17 FY18E FY19E FY20E

New residental connections YoY change

Residental24%

Industrial48%

Commercial17%

CNG/LNG stations

11%

Piped gas26%

Connection fees57%

LPG sales11%

Value added services

6%

Figure 6: China Gas’ Forward PER band


0

5

10

15

20

25

30

HKD

3-Year Average Rolling Forward P/E = 13.3X

384 HK EQUITY

PER 7

PER 10

PER 13

PER 16

PER 19

9

Figure 7: Peer valuation

Sources: Bloomberg, CGIS Research

Company namePrice

(HK$)

Market

cap

(HK$m)

2017E PER

(x)

2018E PER

(x)PBR (x)

Dividend

yield (%)

1083 HK Equity Towngas China Co Ltd 6.43 17,747 15.12 13.16 1.23 1.87

384 HK Equity China Gas Holdings Ltd 24.35 121,000 19.90 16.70 4.80 1.15

1193 HK Equity China Resources Gas Group Ltd 25.75 57,268 15.31 13.60 2.86 1.75

392 HK Equity Beijing Enterprises Holdings Ltd 42.7 53,889 7.91 7.44 0.87 2.23

2688 HK Equity ENN Energy Holdings Ltd 62.2 67,454 15.74 13.81 3.42 1.33

956 HK Equity China Suntien Green Energy Corp Ltd 1.99 7,393 6.56 5.84 0.72 3.65

10

Disclaimer

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Explanation on Equity Ratings

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China Galaxy International Securities (Hong Kong) Co. Limited, CE No.AXM459

20/F, Wing On Centre, 111 Connaught Road Central, Sheung Wan, Hong Kong. General line: 3698-6888.

BUY share price will increase by >20% within 12 months in absolute terms :

SELL share price will decrease by >20% within 12 months in absolute terms :

HOLD no clear catalyst, and downgraded from BUY pending clearer signal to reinstate BUY or further downgrade to outright SELL :

Documents

Yum Cha 飲 茶€¦ · construction, and management said the capacity expansion was on track. The Company will also expand upstream capacity in the fabric segment in Vietnam and

Yum Cha 飲茶€¦ · construction, and management said the capacity expansion was on track. The Company will also expand upstream capacity in the fabric segment in Vietnam and