China Resources Gas’ Weak 1H 2022 Results Largely Expected; Sequential Improvement Expected

Narrow-moat China Resources Gas’, or CRG’s, first-half 2022 net profit of HKD 3.05 billion, down 6.3% year on year, was mainly attributable to lower dollar margin and COVID-19 disruptions. The results were broadly within our expectation. We lower our fair value estimate to HKD 39.00 from HKD 42.50, after incorporating management’s guidance and depreciation of the Chinese yuan. We also increase our Morningstar Uncertainty Rating to High from Medium as prolonged high energy costs could add risk. We think CRG is undervalued currently, with shares trading at about 11 times 2022 P/E as of Aug. 26 closing, the lower end of the five-year historical trading range of around 9 times to 19 times. While looking historically cheap in terms of P/E, we believe the slowdown in the property sector and high input costs are likely to continue weighing on its near-term share price performance.