China Resources Gas Earnings: Results in Line but Near-Term Headwinds Will Limit Upside

Narrow-moat China Resources Gas’, or CRG’s, first-half 2023 net profit was up 16.4% year on year to HKD 3.55 billion. Stripping out the gain from the disposal of an associate, the results were broadly within our expectations, but we expect a mixed market reaction with CRG lowering sales guidance. We cut our 2023-25 earnings estimates by 1.9%-7.1% after incorporating the latest operating statistics and depreciation of the Chinese yuan, and lower our fair value estimate to HKD 32.00 from HKD 33.50. We think CRG is undervalued currently, with shares trading at about 5% estimated dividend yield for 2023 and 9 times 2023 P/E as of Aug. 25 closing, which is the lower end of the five-year historical trading range of around 7 times to 19 times. Nonetheless, we believe the slowdown in the property sector will continue to weigh on CRG’s near-term share price performance.