BEH’s Full-Year Results Slightly Missed; but Increased DPS Payout Ratio a Positive Highlight

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.