China / Hong Kong Industry Focus China Gas Utilities Sector

Refer to important disclosures at the end of this report

DBS Group Research . Equity 29 Sep 2017

More upside in the re-rating cycle HSI : 27,513

ANALYST · Coal-to-gas conversions will continue to drive Tony WU CFA +852 2971 1708 gas volumes and new connections [email protected] · Market has underestimated the potential of Patricia YEUNG +852 2863 8908 rural coal-to-gas conversions [email protected]

· Decline in natural gas end user selling prices will drive up demand in 2018 Recommendation & valuation · More upside from sector re-rating cycle; our top picks are ENN (2688 HK) and China Gas Company Price Mkt Target Upside/ Recom 17F (384 HK) Cap Price (downside) PE HK$ US$m HK$ % x Coal-to-gas conversion is the key. Coal-fired boiler Enn Energy 53.45 7,400 66.00 23% BUY 14.4 Holdings* conversions and rural coal-to-gas conversions will serve as (2688 HK) key drivers for natural gas demand and we believe the market has not fully factored in the growth potential, China Gas 22.90 14,563 27.10 18% BUY 19.1 especially for rural coal-to-gas conversions. We reckon rural Holdings*# (384 HK) coal-to-gas conversions is one of the main tools for the government to reach its gas consumption target. Thus, this China 26.60 7,572 n.a. n.a. NR 15.2 will bring about the government to introduce additional Resources Gas Gp. (1193 HK) policies to expand coal-free zones and extend subsidy schemes. We expect natural gas consumption to rise above Towngas China 5.29 1,875 n.a. n.a. NR 12.2 330bn cubic metres (m3) by 2020, and conversion of coal- (1083 HK) fired boilers and rural coal-to-gas conversion will contribute Beijing 40.90 6,607 n.a. n.a. NR 7.9 more than 25% and 12% respectively of gas consumption Enterprises growth during 2015-2020. Hdg. (392 HK)

Demand boost from price drop. We reckon the market is Based on closing prices as at 26 Sep 17 too conservative in gas volume growth in 2018. We expect # FY17: FY18; FY18: FY19 gas volume will be boosted by higher usage volume of existing customers and lift in new connection in 2018, on Source: Thomson Reuters, DBS Vickers the back of continued decline in gas selling price, lower pipeline transmission tariff and non-residential dollar margin. Contrary to market expectations, we believe the net effect is positive despite the drop in dollar margin as volume growth outweighs margin cuts, helped by further declines in intra- provincial transmission tariffs.

ENN and China Gas are our top picks. We are initiating coverage with BUY ratings on ENN (2688 HK) and China Gas (384 HK). ENN and China Gas are our sector top picks as they are expected to enjoy high gas volume growth from coal-to-gas conversions and would be least impacted by dollar margin decline.

ed- JS/ sa- DL Industry Focus China Gas Utilities Sector

Table of Contents

Coal-to-gas conversion to boost demand 3 Lower gas price to boost demand 7 Top stock picks: ENN and China Gas 14 Stock Profile Enn Energy Holdings 16 China Gas Holdings 24 Beijing Enterprises Hdg. 32 China Resources Gas Gp. 34 Towngas China 36

Appendix A lucrative industry with bright prospects 38

Page 2 Industry Focus China Gas Utilities Sector

Coal-to-gas conversion to boost demand tons/hour) are required to be closed; 2) Each of the 28 cities needs to convert 50,000 – 100,000 households for coal-to-gas We believe coal-to-gas conversion will be the key driver in or coal-to-electricity conversion; 3) strengthening scattered coal driving gas sales volumes and new connection fees for gas replacement measures in rural regions distributors in the next two years. We reckon the growth potential is underestimated by the market, especially rural coal- More coal-fired boilers to be converted. The State Council to-gas conversion. We expect demand from coal-fired boilers targets to convert 189k steam ton/hour (t/h) of industrial coal- will remain strong as boilers between 10-35 steam t/h will face fired boilers by 2020, which is expected to boost natural gas stricter regulation, and rural coal-to-gas conversion is expected demand by 38bn m3. This accounts for >25% of the gas to accelerate going forward. volume growth in China during 2015-2020, becoming a key task for the government to tackle in order to achieve its gas Coal-fired boilers and rural coal-to-gas conversion is crucial in consumption target. government’s plan to reach its 13th Five-Year-Plan (FYP) target. The natural gas demand generated from coal-fired boilers The “Action Plan on Prevention and Control of Air Pollution” conversion and rural coal-to-gas conversion is estimated to promulgated by the State Council seeks to take measures to account for >25% and >12% of the increase in natural gas reduce air pollution in China. One of the main targets is to shut consumption during 2015-2020. Therefore, the local small coal-fired boilers (<10 t/h) in cities above prefecture-level governments will need to ensure strict implementation of by 2017 and replace these with cleaner sources including policies in order to reach their respective targets. natural gas. As the assessment deadline approaches, an increasing number of local supplemental policies are being As the first mover tackling coal-to-gas conversion and with rolled out. Strong execution to shut down or convert coal-fired high exposure to Beijing-Tianjin-Hebei region, we believe China boilers were also seen starting in 2H2016. Gas and ENN will be the major beneficiaries. We expect the gas sales volume growth for China Gas and ENN to achieve above After closing down the small size boilers, we expect the the industry average of c.15% at 40% and 32% respectively in government to start tighten the environmental policy by FY17. shutting down or convert coal-fired boilers between 10 steam t/h to 35 steam t/h soon, which will be positive to the market Beijing-Tianjin-Hebei area will be the focus. Coal consumption sentiment. In fact, core cities such as Tianjin and Shijiazhuang in Beijing, Tianjin, and Hebei surrounding regions account for has already implemented tighter policy. According to the one-third of total coal usage in China, thus reducing coal General Administration of Quality Supervision, Inspection and consumption in the area is a major uphill task. In Feb 2017, the Quarantine of the PRC, the amount of industrial coal-fired government issued the 2017 Action Plan on Prevention and boilers below 10 t/h are similar to coal-fired boilers between 10 Control of Air Pollution for Beijing-Tianjin-Hebei regions to t/h – 35 t/h, indicating there are plenty of room for further ensure that targets are met this year. The action plan focuses conversion. on tackling 28 cities in Beijing, Tianjin, Hebei, Shanxi, Shandong, and Henan. Important measures related to coal-to- gas conversion include: 1) Small coal-fired boilers (<10 steam

Page 3 Industry Focus China Gas Utilities Sector

Recent policies related to coal-to-gas conversion

Policy Details related to coal to gas

Tianjin 2017 Tianjin air pollution prevention plan (天津 2017 Ø By end of October, establishment of high polluting fuel restriction zones in the city. 年大气污染防治工作方案) Complete the establishment of “no coal zone” in Wuqing District’ and carry out clean energy replacement for 610 villages, 187,000 households (109,000 households : coal to electricity; 78,000 households : coal to gas/other alternative clean energy)

Complete conversion or closure of 2,091 t/h of heating coal-fired boilers (capacity <35 t/h). Complete 1,190 steam tons of heating coal-fired boilers (>35 t/h) conversion or closure. Complete conversion or closure of industrial coal-fired boilers representing capacity of 1,950 t/h of industrial coal-fired boilers’ conversion or closure. Hebei 2017 Shijiazhuang air pollution prevention plan (石家 Ø Before the end of October, eliminate coal-fired boilers with capacity of 10 t/h or below 庄市 2017 年大气污染防治工作方案) in the city’s administrative region. Eliminate coal-fired boilers (<35 steam tons) in the city’s built-up areas.

Promote the replacement of coal with heat, gas and electricity. Achieve to be “coal- free” in main city areas by 2017.

Scattered coal handling plan in rural area for Hebei Ø Reach 6 million or more users by 2020 for coal-gas / coal-electricity Province (河北省农村散煤治理专项实施方案) Special implementation plan for coal-fired boilers in Ø By the end of October 2017, eliminate 11,441 tons coal-fired boilers across all Hebei Province (河北省燃煤锅炉治理专项实施方案) provinces and cities. Coal-fired boilers have priority to connect to centralised heating network. For areas without centralised heating network, encourage gas/ electricity/clean energy to replace coal Substandard coal handling control policy in Hebei Ø 1.8 million households will complete conversion to clean energy in the “no-coal zone” Province (河北省劣质散煤管控专项实施方案) in Hebei Province this year. Henan Henan Province’s coal to natural gas policy (河南省天 Ø Aim to increase kitchen usage of natural gas for >100,000 village households and 然气替代煤专项方案) increase natural gas usage to 20m m3 by 2020. Continuous effort in fighting air pollution Ø By 2017, conversion of scattered coal to natural gas usage will reach 80m m3, with transmission in Henan Province 2017 (河南省 2017 年 40k of village households using natural gas in kitchens across the province. 持续打好打赢大气污染防治攻坚战行动方案) By August 2017, demolish or convert 902 units (<10 t/h) of coal-fired boilers in Hebei- Tianjin-Beijing’s key air pollution control areas including Zhengzhou, Anyang, Hebi, Xinxiang, Jiaozuo

Shandong 2017 air pollution prevention plan details for Ø By October 2017, each of the 7 key cities will complete the conversion from coal to Shandong Province(山东省<京津冀及周边地区 2017 gas/ electricity for 50,000 – 100,000 households in total. 年大气污染防治工作方案>实施细则) By end of October 2017, Jinan City to eliminate coal-fired boilers below 35 t/h as well as coal stoves, and small commercial coal stoves. The other 6 cities including Feifang, Tai’an, Laiwu will eliminate coal-fired boilers (<10 t/h). The remaining 7 cities will eliminate all coal-fired boilers below 10 t/h. Shanxi 2017 air pollution prevention policy in Shanxi Ø By end of October, Taiyuan, Lüliang, Jinzhong, Changzhi and Linfen, will each Province (山西省大气污染防治 2017 年行动计划) complete the conversion from coal to gas/electricity for over 10,000 households. The remaining cities will complete the conversion of 50,000 households depending on their situation.

By end of October, all county areas will eliminate all coal-fired boilers (<10 t/h). 11 district areas will eliminate coal-fired boilers (<20 t/h). Accelerate the replacement of coal-fired furnace to gas/electricity stove by the end of October. Source: DBS Vickers

Page 4 Industry Focus China Gas Utilities Sector

Pace of rural coal-to-gas conversion has been underestimated. households is higher than urban households due to the lack of We are positive on rural coal-to-gas conversion as it will be one central heating systems; 2) Residential consumption is less of the major drivers for the government to reach its gas impacted by economic downturn compared to commercial & consumption target in 2020. We expect rural coal-to-gas industrial (C&I) consumption. conversion to account for >12% of the increase in natural gas consumption during 2015-2020. Furthermore, we believe the government will expand coal-free zones as part of the Household coal consumption measures to ensure that policies are successfully executed. The establishment of coal-free zones will prevent companies or Ton'000 residents from selling or using coal. 18,000 16,000 The government moved its focus to tackle coal usage in rural 14,000 12,000 areas from 2017 as rural residential coal consumption is 10,000 believed to be one of the major contributors to air pollution. 8,000 Beijing-Tianjin-Hebei region will be the focus as rural residents 6,000 use scattered coal as a primary heat generation fuel. Scattered 4,000 coal has the characteristics of low efficiency and high pollution. 2,000 The emission intensity of scattered coal is 17.5 times more than 0 coal for electricity generation. As a result, rural households Hebei Shanxi Tianjin Henan accounted for >70% of the total residential coal consumption. Beijing Shandong

We estimate there are c.40m rural households available for Urban Rural coal-to-gas conversion in the Beijing-Tianjin-Hebei areas, which could boost natural gas demand by 18bn m3 (>10% Source: CEIC contribution to reach the natural gas consumption target in 2020). The two positive effects for rural coal-to-gas conversion to gas distributors are: 1) Coal consumption for rural

2017 Beijing-Tianjin-Hebei reduction in coal consumption p 2017 coal equivalent 2017 target rural reduction - 2015 gas gas Est. rural household coal natural gas heat consumption consumption household Region reduction equivalent (m m3) (m cu.m) in 2015 (m) Beijing 144,000 216 14,688 1% 1.0 Tianjin 187,000 281 6,398 4% 0.9 Hebei 1,800,000 2,700 7,297 37% 11.6 Henan 40,000 60 7,877 1% 16.4 Shandong 350,000 525 8,232 6% 13.6 Shanxi 970,000 1,455 6,492 22% 5.4 Total 3,491,000 5,237 50,984 10% 48.8

Source: CEIC, DBS Vickers

Page 5 Industry Focus China Gas Utilities Sector

Subsidies to encourage gas usage In terms of cost comparison between coal and gas usage, we The local governments have issued the relevant subsidy estimate the cost for rural natural gas users is slightly higher at schemes for new users in order to encourage the coal-to-gas around Rmb210 /yr in Hebei after subsidy payments, which is conversion initiative. Given increasing environmental and acceptable for users in the light of health related issues of health awareness, we believe the subsidy scheme provides burning coal in homes, and increasing environmental sufficient incentives for natural gas usage despite slightly awareness. For initial installation, rural users receive a subsidy higher costs for rural users. The subsidy scheme will last for covering 70% of equipment cost with a maximum of three years and we believe the governments are willing to Rmb2,700, and Rmb4,000 connection fee subsidy, which extend the subsidy scheme to achieve its natural gas should cover most of the installation costs. In addition, users consumption target. And the establishment of coal-free zones will receive a natural gas tariff subsidy of Rmb1 /m3 with a will prevent companies from selling/using coal, which will push maximum Rmb1,200 per year. Assuming a typical household up local coal prices and reduce the attractiveness of a possible uses 1,500 m3 of natural gas for heating purpose, the total switch back to using coal. cost after subsidy would be Rmb2,160. This is slightly higher than the total cost of c.Rmb1,950 for 3 tons of coal usage. Selection of subsidy policies Coal vs natural gas – rural users in Hebei Langfang Province City Subsidy Beijing · 30% equipment cost subsidy - maximum Natural gas Coal (北京） of Rmb12,000 (villages <500 households) Installation subsidy 70% equipment cost subsidy N.A and Rmb24,000 (villages > 500 at maximum of Rmb2,700 + households) Rmb4,000 connnection Tianjin · Municipal Ministry of Finance provided subsidy (天津) total subsidy of Rmb320m All-in installation cost Cost neutral as subsidy covers most installation Hebei Handan · Gas equipment : 70% cost subsidy at and equipment costs (邯郸) maximum of Rmb 2,700 Tariff Rmb2.24 /m3 Rmb650 / ton · Discounted gas pipeline installation fee Usage assumption 1500 m3 3 tons of Rmb2,600 Tariff subsidy Rmb1/m3, maximum of · Natural gas tariff (heating) subsidy : Rmb1,200 Rmb1 / m3 at a maximum Rmb1,200 Total cost / yr (Rmb) 2,160 1950 Source: DBS Vickers Hengshui · Installation subsidy : Rmb2,600 (衡水) · Natural gas tariff subsidy : Rmb1.5 / m3 Xingtai · Natural gas tariff subsidy : Rmb1 /m3 for (邢台) maximum Rmb900 Shijiazhuang · Installation and equipment : Rmb3,900 (石家庄） · Natural gas tariff subsidy: Rmb1 / m3 at maximum of Rmb900 Baoding & · Gas equipment : 70% cost subsidy at Langfang maximum of Rmb 2,700 (保定&廊坊) · Coal-forbidden zones will no longer adopt tier-pricing system · Natural gas tariff (heating) subsidy : Rmb1 / m3 at maximum of 1,200 m3 · Gas pipeline connection subsidy Rmb4,000 Source: DBS Vickers

Page 6 Industry Focus China Gas Utilities Sector

Lower gas price to boost demand Recent intra-provincial tariff cuts

We believe end user gas price will decline in the next two years, Date Province Old tariff New tariff Cut % which is positive to gas demand growth. We reckon the Jul-17 Shandong 0.27 0.25 7% market has priced in the decline in non-residential distribution Apr-16 Zhejiang 0.29 0.19 34% dollar margin (dollar margin) but has not fully appreciated the Apr-16 Guangdong 0.2897 0.26 10% benefit from volume growth. We attribute the drop in non- Nov-16 Jiangxi 0.4 - 0.508 0.35 13% to 31% residential selling price during 2H2016 and 1H2017 mainly to Oct-16 Shaanxi 0.441 0.32 27% the cut in dollar margin. Going forward, we expect the cut in Source: NDRC, DBS Vickers end selling price will be partially borne by a cut in pipeline transmission fees, which would boost earnings as volume In Oct 2016, the NDRC issued a document on the trial growth outweighs dollar margin decline. implementation of natural gas pipeline transmission pricing scheme. The return on asset for inter-provincial pipelines (long Dollar margin – China gas distributors distance) is set at 8% based on a minimum utilisation rate of 75%, which means that a utilisation rate below 75% will have Rmb/m3 lower returns. The tariff mechanism is set for the pipeline 0.74 company and it will be adjusted every three years. We believe a 0.72 similar policy could be set to limit the return on intra-provincial 0.70 (medium to short) pipeline transmission. 0.68 0.66 We examined the investment return criteria for the new transmission pricing scheme, and these should lower 0.64 transmission tariffs compared to the old regime, which means 0.62 newly constructed pipelines going forward will have lower 0.60 transmission fees. The parameters under the new pricing 0.58 scheme will lower the cost for pipeline projects, which will China Gas * CR Gas ENN Town Gas lower tariff revenue if the return is unchanged. Taking FY16 1H17 Petrochina as an example, firstly, the investment yield for its gas pipeline projects in the past was 10-12%, which is higher Source: Company, DBS Vickers than the new measure of 8%. Secondly, the depreciation was * FY16:FY17, 1H17:1FYH18F between 14 to 30 years, compared to the 30 years period under the current mechanism. Thirdly, the transmission loss Declining selling price driven by cuts in transmission tariff. We rate was lowered to 0.2% from 0.1%-0.8%. With lower believe there is more downside to pipeline transmission tariffs. depreciation and transmission loss rate, the cost of After the c.15% cut in long distance pipeline transmission tariff, transmission operation will be lower, leading to lower tariff. we expect more provinces to announce a tightening of intra- provincial transmission tariffs, which would help to further reduce end user selling price, and boost gas sales volume growth.

Pipeline transmission fees is one of the major cost components of gas distributors, and is estimated to account for c.30% of the selling price. We have seen a few provinces such as Shandong and Zhejiang have started cutting intra-provincial gas pipeline transmission tariffs, and we expect other provinces will follow suit. We expect the intra-provincial tariff to be cut by an average of 15% in FY18, implying c.Rmb0.03-0.06 reduction in city-gate price. This could help to alleviate distribution margin pressure, reduce end selling price, and stimulate demand in the long run.

Page 7 Industry Focus China Gas Utilities Sector

Major changes to parameters Ta riff Parameters CNPC New regime impact Rate of return 10-12% 8% (>75% utilisation) negative Depreciation 14-30 years 30 years negative Transmission loss rate 0.1% - 0.8% 0.2% negative

Source: NDRC, Petrochina, DBS Vickers

Petrochina and Sinopec gas transmission pipelines

Capacit y Estimated New tariff Distance (m m3 Utilisation ROA prior to (Rmb/ '000 Company Major pipelines (km) /yr) (%) Sept 2017 m3 * k m) Petrochina Eastern Pipeline West-to-east line I , West-to-east line 11,883 103,600 44% >=8% 0.2429 Co. II, Zhongxian-Wuhan line, Gantang- Yingchuan line Petrochina Beijing Pipeline Shanxi-Beijing line I, II, III 3,714 32,000 105% >15% 0.2857 Co. Petrochina Pipeline United West-to-eastline I (west part), west-to- 14,047 49,900 76% >15% 0.1442 Co. east line II (west part), Lunnan-Kuerle line, Shanwu-Shihua line, Sebei- Lanzhou line Petrochina Natural Gas - Qinhuangdao-Shenyang line, Dalian- 2,628 41,200 25% <5% 0.4678 Pipeline Affiliate Shenyang line, Shenyang-Changchun line, Zhaozhuang-Anping line, Caoxian-Taian line, Puyang-Cangzhou line Petrochina Northwest West-to-east line III 5,220 30,000 67% >8% 0.1224 United PipelineCo. Petrochina Natural Gas - Zhongwei-Guiyang line, Guangzhou- 1,956 25,000 25% <5% 0.3961 Southwest Pipeline Affiliate Nanling line, West-to-east line (Guangxi part) Petrochina Natural Gas - Sichuan-Chongqing line 8,548 30,000 68% <8% Rmb0.15/ m3 Southwest Oil & Gas Field Affiliate Petrochina Southwest Myanmar-China line 1,727 36,700 13% <5% 0.4109 Pipeline Co. Sinopec Sichuan-East Sichuan-East line 2,270 12,000 79% 8% 0.3894 Natural Gas Pipeline Co. Sinopec YuJ i Pipeline Co. Yulin-Jinan line 997 3,000 99.8% <8% 0.4443 Source: Petrochina, Sinopec, NDRC, DBS Vickers

Page 8 Industry Focus China Gas Utilities Sector

Distribution dollar margin drop offset by volume growth. Large distributors are giving price discounts for the purpose of Despite the higher than expected dollar margin cut for gas maintaining relationship with customers and incentivize for distributors in 1H2017, we see stronger revenue growth higher volume. For example, ENN lowered the dollar margin momentum driven by volume increase. The 9% drop in dollar from Rmb0.3/m3 to Rmb0.12/m3 to a petrochemical C&I margin was partially offset by a 22% increase in gas sales customer in Fujian, and in turn the customer increased the gas volume for the three gas distributors. As a result, the three volume to 150m m3 from 23m m3 one year ago. Thus, despite major gas distributors delivered 1H2017 earnings that were in a decline in dollar margin, gross profit of that client shot up line or above consensus. from Rmb6.9m to Rmb18m.

Downtrend in natural gas price

City gate price

Medium -short Long distance distance End Upstream ex- pipeline pipeline Distribution selling plant price t ransmission margin t ransmission price tariff tariff

- gov ernment -ROA < 8% - government -ROA < 7% - lower price hopes to requirement intends to requirement to end users liberalize limits the tariff intensify the limits dollar and boost upstream upside regulation of margin upside, demand selling price to midstream and but most be market -latest lower tariff distribution driven over the Rmb0.1 city- projects have long run gate price cut yet to reach was mainly the -increase from the requirement production / c.15% decline import in LD -some regions capacity transmission are exposured tariff to higher risks

Source: DBS Vickers

1H17 result recap

ma rgin Earnings growth 1H16 dollar 1H17 dollar change Volume Revenue (exclude one off vs ma rgin ma rgin (yoy) growth (yoy) growth (yoy) items) consensus CR Gas 0.75 0.64 -15% 22% 15% 8% In line ENN 0.72 0.66 -8% 27% 37% 15% In line Town Gas 0.7 0.67 -4% 18% 17% 8% Above

Source: DBS Vickers

Page 9 Industry Focus China Gas Utilities Sector

We expect that the magnitude of the dollar margin decline will Gas distributors segmental profit moderate in 2H17 and FY18, which is positive for market sentiment towards downstream gas distributors. The slower 120% dollar margin decline will be mainly from: 100% 1) We expect the cut in intra-provincial transmission fee will 80% take effect in multiple provinces in the next few months, which will lower end user gas price and boost volume growth without 60% affecting dollar margin; 40% 2) We believe gas distributors have offered higher discounts to 20% attract C&I coal-to-gas customers during 2H16/1H17 as the government accelerated the speed of coal-to-gas conversion 0% recently. Such discounts are expected to decline as the cut in China Gas CR Gas ENN Towngas city-gate price will achieve the same effect. China Piped gas Connection fee Others 3) In the short run, we expect 1-2 months of delay in the pass through of the recent Rmb0.1/m3 city gate price cut, which is Source: DBS Vickers positive to dollar margin. In the long run, the full pass-through of city-gate price cut to end selling price will help to alleviate the pressure on dollar margin; Average ROA (gas sales ex connection fee)

The NDRC released regulatory guidance opinion on gas 6% distribution prices in June this year to clarify its stance and removed industry concern of a potential steep cut in 5% distribution margin. According to the guidance opinion, the return on attributable asset (ROA) for city gas distribution 4% business cannot exceed 7%. The 7% ROA requirement excludes new connection fees. The average project ROA for 3% China Gas, CR Gas, ENN, and Towngas is 3%, 4%, 4%, and 5% respectively, which implies a large portion of projects have 2% yet to meet the 7% ROA requirement. 1%

0% China Gas CR Gas ENN Towngas China

Source: Company, DBS Vickers

Page 10 Industry Focus China Gas Utilities Sector

Dollar margin risk by province

Average residential city Dollar Tightening High High With LNG industrial selling gate price margin policy for gas dollar end receiving Province price (Rmb/ m3) (Rmb/ m3) (Rmb / m3) distribution margin price terminals Fujian 4.20 1.65 2.55 Yes Yes Yes Yes Zhejiang 3.85 2.07 1.78 Yes Yes Yes Yes Liaoning 3.50 1.88 1.62 Yes Yes Yes Yes Shandong 3.40 1.88 1.52 Yes Yes Yes Yes Jiangsu 3.25 2.06 1.19 Yes Yes Yes Yes Hainan 4.33 1.54 2.79 Yes Yes Yes Guangdong 4.63 2.08 2.55 Yes Yes Yes Shanghai 3.57 2.08 1.49 Yes Yes Yes Guangxi 4.19 1.91 2.28 Yes Yes Yes Jiangxi 3.39 1.86 1.53 Yes Yes Yes Shanxi 3.20 1.81 1.39 Yes Yes Yes Heilongjiang 3.80 1.66 2.14 Yes Yes Yunnan 3.42 1.61 1.81 Yes Yes Sichuan 3.25 1.55 1.70 Yes Yes Hunan 3.43 1.86 1.57 Yes Yes Anhui 3.25 1.99 1.26 Yes Yes Jilin 3.15 1.66 1.49 Yes Hebei 2.99 1.80 1.19 Yes Tianjin 2.77 1.90 0.87 Yes Hubei 2.95 1.86 1.09 Yes Henan 2.89 1.91 0.98 Yes Qinghai 1.81 1.17 0.64 Yes Guizhou 2.98 1.61 1.37 Xinjiang 2.39 1.05 1.34 Beijing 3.16 1.90 1.26 Shaanxi 2.30 1.24 1.06 Inner Mongolia 2.25 1.24 1.01 Chongqing 2.32 1.54 0.78 Ga nsu 1.99 1.33 0.66

Source: DBS Vickers

Some regions are subject to high dollar margin risks. Even relative to other regions and local policy requirement; 4) high though the gas distributors do not meet the 7% ROA non-residential selling price. requirement, we believe more mature projects in certain regions will be more prone to dollar margin cut. We expect China Gas to be least impacted by dollar margin compression as it has the lowest exposure to high risk regions and low earnings sensitivity to gas dollar margin cut.

We have identified five high risks regions with high chance of dollar margin decline: Fujian, Zhejiang, Liaoning, Jiangsu and Shandong. These regions are subject to high risk from distribution tariff cuts as they meet all our risk criteria: 1) local government-imposed policies to regulate distribution tariff; 2) have LNG receiving terminals which is more prone to competition from direct supply of LNG; 3) high dollar margin

Page 11 Industry Focus China Gas Utilities Sector

Uplift in residential dollar margin. The tier-pricing system for Rising LNG imports may lower upstream price. China has residential users has yet to be fully implemented for gas relatively lower gas reservoir quality compared to other distributors, thus we see additional room for further upside in countries with abundant gas reserves, thus it needs to rely on residential selling price and dollar margin. China Gas will gas imports. China has been increasing its LNG imports over benefit the most as it has the lowest tier-pricing the past years, which is positive for lowering the end user gas implementation ratio for its residential users. price from potential cheaper LNG import price. The strong growth from other exporting countries such as the U.S should Gas sales volume contribution and implementation not be overlooked as this may also lead to lower cost of LNG imports. The robust gas demand growth in the past years has driven up the proportion from imports from 15% in 2010 to 36% in 2016. Natural gas demand and supply – China

m cu.m 2,500

2,000

1,500

1,000

500

Source: Company, DBS Vickers 0 2012 2013 2014 2015 2016

Domestic production Import Demand The government introduced the residential tier-pricing system in 2015, which will effectively revise up the tariff for residential users with high usage. The residential end user gas price is Source: Wind, DBS Vickers divided into three tiers. The price for second and third tier will be 20% and 50% respectively above the tier one price. In Amid the current low oil price environment, LNG prices have terms of usage, 80% of the residential gas usage will fall into also declined to a level that is competitive for coastal areas. The tier one, while tier two and three will cover the next 15% and average arrival price of LNG has fallen 26% since June 2014 to 5% of the gas usage respectively. Rmb3900/ton in September 2017. The price is equivalent to c.Rmb2.6/m3, which is competitive compared to average non- Given that the residential city-gate price had been unchanged industrial selling price of Rmb3.3/m3 even after adding for the past five years, the increase in residential selling price Rmb0.3/m3 of gasification fee. Thus, we reckon regions with will be positive for dollar margin while the gas volume is less LNG receiving terminals nearby will see pressure on ASP price sensitive to C&I users. China Gas will be the main pressure from competition of LNG supply. On the other hand, beneficiary as it has lower tier-pricing implementation rate and gas distributors such as ENN with potential access to LNG a larger user base. Assuming that 10% more households move receiving terminals is expected to have margin benefits from onto the tier-pricing system, China Gas’ dollar margin for city the low LNG cost used at its projects nearby. gas projects is expected to increase from Rmb0.68/m3 to Rmb0.70/m3.

Page 12 Industry Focus China Gas Utilities Sector

Piped gas vs LNG LNG imports into China by country

Rmb/m3 50% 3.5 45% 40% 3.0 35% 2.5 30%

2.0 25% 20% 1.5 15% 1.0 10% 5% 0.5 0% 0.0 2012 2013 2014 2015 2016 LNG - arrival Non-residentialNon-residential residential Australia Indonesia Qatar price city-gate price selling price selling price Malaysia Others

Source: Wind, DBS Vickers Source: Wind

More competition among LNG exporting countries and increasing LNG supplies could benefit China’s LNG import price as the US opens the LNG export market to China. The US started to increase the scale of LNG exports into China in 2016. In 1H2017, the US signed a trade deal to allow Chinese companies to negotiate long-term LNG contracts with US suppliers at terms no less favourable than other trading partners. According to EIA, the US is expected to increase gas exports by 22.6% in 2018 and its LNG export capacity is set to increase by nearly sevenfold from 1.4 bn cubic feet per day (Bcf/d) in 2016 to 9.5 Bcf/d in 2019, behind only Australia and Qatar.

LNG import price comparison – Apr 2017

10,000 /ton 120 600 100 500 80 400 60 300 40 200 20 100 0 0 USA Qatar Papua Angola Malaysia Australia Indonesia

Quantity (LHS) unit price (RHS)

Source: SCI99

Page 13 Industry Focus China Gas Utilities Sector

Top stock picks: ENN and China Gas Number of projects in Beijing-Tianjin-Hebei areas

The gas distributors in China are currently trading at 13x FY18F PE, which is -1SD below the historical average. We believe the China Gas ENN Towngas CR Gas re-rating cycle will continue, led by strong gas volume growth Beijing 0 1 0 0 from two catalysts 1) coal-fired boilers conversion and rural Tianjin 3 0 0 1 coal-to-gas conversion; 2) downtrend in end user gas price Hebei 41 20 6 7 from lower distribution and pipeline transmission tariffs. Henan 20 11 0 12 Shandong 18 17 18 18 ENN and China Gas are our sector top picks as we believe they Shanxi 2 0 0 8 have higher sales volume growth potential from coal-to-gas Total 84 49 24 46 conversions and are least impacted by the current declining Source: Company, DBS Vickers dollar margin environment. ENN and China Gas’ implied PEG ratio is 0.98 and 0.99 respectively, which is lower than peer’s average of 1.2. The ability to navigate through the declining dollar margin environment is one of the key reasons for our stock picks. PE vs EPS growth China Gas has lower earnings sensitivity to margin cut and lower exposure regions with a higher risk of dollar margin PE pressure. ENN on the other hand, is expected to benefit from 25 low cost LNG supply in Zhejiang after construction of the LNG receiving terminal is completed in 2018. We expect the dollar China Gas margin for ENN and China Gas to decline at a slower rate at 20 Rmb0.015/m3 and Rmb0.01/m3 respectively in FY18. CR Gas 15 Kunlun The sector share price performance had a blast in 2017, which was up by an average of 63% YTD. The rally was due to the ENN accelerated gas sale volume growth and the implementation of Towngas 10 distribution ROA requirement, which removed the industry overhang. ENN and China Gas has outperformed the sector BEH 5 and we believe it to continue on better earnings growth.

0 0% 5% 10% 15% 20% 25% FY17-19 EPS growth

Source: Thomson Reuters, DBS Vickers

We have identified that coal-to-gas conversions will be the main volume driver for natural gas in the next three years, and gas distributors with strategies to penetrate the market will benefit the most. ENN and China Gas will be the major beneficiaries as they have strong project acquisition ability and enjoy first mover advantage in securing coal-to-gas projects, which has been underestimated by the market. Their projects also have high exposure to Beijing-Tianjin-Hebei and surrounding regions, which are our favoured regions for coal- to-gas conversions. We expect China Gas and ENN to achieve gas sales volume CAGR of 31% and 26% in FY17-20, above the its peers’ average of 20%.

Page 14 Industry Focus China Gas Utilities Sector

Gas distributor comparison table

China Gas (384 HK) * ENN (2688 HK) Towngas (1083 HK) CR Gas (1193 HK) Sales mix Gas sales : 43% Gas sales : 80% Gas sales : 77% Gas sales : 73% Connction fee : 18% Connction fee : 16% Connction fee : 23% Connction fee : 23% Others : 39% Others : 4% Others : 0% Others : 5% FY16 Blended 0.69 0.73 0.71 0.68 dollar margin (Rmb/m3) F Y16 gas sales 12,224 14,329 7,120 16,272 v olume (m m3) FY17/FY18 gas 40% / 30% 32%/ 26% 18% / 15% 20% / 15% volume growth FY 16 gas volume Commercial & Industrial C&I : 77% Commercial : 18% C&I : 67% mix (C&I) : 74% Residential : 13% Industrial : 55% Residential : 22% Residential : 16% Gas station : 11% Residential : 27% Gas station : 11% Gas station : 10% Avg ROA (exclude 3% 3-4% 5% 4% connection fee) Total # of projects 330 160 105 227 Project distribution Eastern : 25% Eastern : 46% Eastern : 45% Eastern : 36% in China Central : 20% Central : 16% Central : 3% Central : 17% Northern : 20% Northern : 14% Northern : 6% Northern : 7% Southern : 10% Southern : 19% Southern : 7% Southern : 14% Western : 7% Western : 2% Western : 20% Western : 13% North Eastern : 18% North Eastern : 3% North Eastern : 19% North Eastern : 13% Strategy Focus in coal-to-gas Expand coal-to-gas Develop distributed gas Tackle coal-to-gas conversion projects, first conv ersion market shares energy projects, space conversion areas in Beijing- mover in rural coal-to-gas and diversify into heating in non-central Tianjin-Hebei regions and conversion integrated energy solution heating regions such as the Bay areas business J iangsu and Zhejiang

* FY17 -> FY3/18 ; FY18 ->FY3/19

Source: Company, DBS Vickers

Peers Table

Mkt PE PE Yield Yield P/Bk P/Bk EV /EBITDA ROE ROE Price Cap F iscal 17F 18F 17F 18F 17F 18F 17F 18F 17F 18F Company Name Code Local$ US$m Yr x x % % x x x x % % China Gas Holdings*# 384 HK 22.9 14,563 Mar 19.1 15.3 1.6 1.9 4.6 3.8 13.3 10.8 26.3 27.1 Enn Energy Holdings* 2688 HK 53.45 7,400 Dec 14.4 12.6 3.4 3.8 2.9 2.6 7.8 6.8 21.4 21.6 China Resources Gas Gp. 1193 HK 26.6 7,572 Dec 15.2 13.5 2.0 2.3 2.8 2.4 8.8 8.0 19.8 19.5 Towngas China 1083 HK 5.29 1,875 Dec 12.2 11.1 2.5 2.7 1.0 0.9 9.8 9.1 8.4 8.6 Beijing Enterprises Hdg. 392 HK 40.9 6,607 Dec 7.9 7.3 2.6 2.8 0.8 0.8 11.2 10.9 10.7 10.6 Kunlun Energy 135 HK 7.33 7,573 Dec 11.7 10.8 2.2 2.6 1.4 1.3 5.1 5.0 12.2 11.7

# FY17: FY18; FY18: FY19

Source: Thomson Reuters, *DBS Vickers

Page 15 China / Hong Kong Company Guide

ENN Energy Holdings Ltd

Version 1 | Bloomberg: 2688 HK Equity | Reuters: 2688.HK Refer to important disclosures at the end of this report

DBS Group Research . Equity 29 Sep 2017

BUY (Initiating coverage) Powering ahead Last Traded Price ( 26 Sep 2017):HK$53.45 (HSI : 27,513) · Largest non-SOE gas distributor in China Price Target 12-mth: HK$66.00 (23% upside) · Major beneficiary of coal-to-gas conversions Analyst Tony WU CFA +852 2971 1708 · Expect cuts in pipeline transmission tariffs and end-user [email protected] selling price to boost volume growth Patricia YEUNG +852 2863 8908 [email protected] · Initiating coverage with BUY rating and HK$66 TP

Price Relative Undervalued gem. ENN Energy Holdings (ENN) is one of the major HK$ Relative Index beneficiaries of higher gas demand from lower gas prices and rising 62.6 208 coal-to-gas conversions. The commencement of operations at 57.6 188 Zhoushan LNG terminal can also help to lower gas procurement cost. 52.6 168 47.6 148 We believe the current valuation of 12x FY18F PE looks attractive 42.6 128 amid strong earnings CAGR of 17% from FY16-FY19. As the 37.6 108

32.6 88 leading non-SOE gas distributor, we reckon the stock is poised to re- 27.6 68 rate further. Sep-13 Sep-14 Sep-15 Sep-16 Sep-17

ENN Energy Holdings Ltd (LHS) Relative HSI (RHS) Where we differ. We are optimistic on the progress of coal-to-gas Forecasts and Valuation conversions in China, which is expected to help stimulate sales FY Dec (RMB m) 2016A 2017F 2018F 2019F volume and new connections. Our assumption for gas sales volume Turnover 34,103 43,739 53,732 63,277 EBITDA 6,929 8,087 9,097 10,173 growth is higher than market projections. Pre-tax Profit 4,195 5,975 6,937 7,922 Net Profit 2,151 3,416 3,903 4,415 Potential catalyst. Lowering end selling prices through cutting intra- Net Pft (Pre Ex) (core 3,212 3,932 4,494 5,111 profit) provincial pipeline transmission tariffs will boost demand growth. EPS (RMB) 1.99 3.16 3.61 4.08 Further tightening of policies to reduce the use of coal fired boilers EPS (HK$) 2.33 3.71 4.24 4.80 will help to support growth of coal-to-gas conversions. ENN is well Core EPS (HK$) 3.49 4.27 4.88 5.55 positioned to capture these opportunities with its favourable Core EPS (RMB) 2.97 3.63 4.15 4.73 EPS Gth (%) 5.7 58.9 14.3 13.1 geographical presence. Core EPS Gth (%) 17.9 22.4 14.4 13.7 Diluted EPS (HK$) 2.33 3.45 3.95 4.46 Valuation: DPS (HK$) 0.97 1.79 2.05 2.32 We are initiating coverage on ENN with a BUY rating with TP set at BV Per Share (HK$) 16.24 18.40 20.87 23.65 HK$66, based on DCF valuation. For our DCF assumptions, we have PE (X) 22.8 14.4 12.6 11.1 assumed a beta of 1.2 with WACC of 8% (equity risk premium of Core PE (X) 15.3 12.5 10.9 9.6 7%; risk free rate of 3%; after tax cost of debt of 2.8%), and 0% P/Cash Flow (X) 9.2 9.3 8.7 8.2 P/Free CF (X) 21.2 21.4 18.5 16.4 terminal growth. EV/EBITDA (X) 8.9 7.5 6.5 5.7 Net Div Yield (%) 1.8 3.4 3.8 4.4 Key Risks to Our View: P/Book Value (X) 3.3 2.9 2.6 2.3 Poor execution of government policy may negatively affect the Net Debt/Equity (X) 0.5 0.4 0.2 0.1 demand for gas. ROAE (%) 15.1 21.4 21.6 21.5

Earnings Rev (%): New New New At A Glance Consensus EPS (RMB) 3.12 3.55 4.05 Issued Capital (m shrs) 1,082 Other Broker Recs: B: 23 S: 1 H: 1 Mkt. Cap (HK$m/US$m) 57,641 / 7,378 ICB Industry: Utilities Major Shareholders ICB Sector: Gas, Water & Multiutilities Wang Yusuo (%) 30.5 Principal Business: Investment, construction and operation of city JPMorgan Chase & Co. (%) 6.0 gas projects Free Float (%) 63.6 Source of all data on this page: Company, DBSV, Thomson Reuters, HKEX 3m Avg. Daily Val. (US$m) 20.3

ed-JS/ sa- JY China /Hong Kong Company Guide ENN Energy Holdings Ltd

Total gas sales volume (m m3)

28568

24,731 23926 CRITICAL FACTORS TO WATCH 20,609 19049

16,488 Critical Factors 14386 11312 Positive government policy. The government intends to focus on 12,366 tackling coal-to-gas conversions and lower gas selling prices, 8,244 which is positive for gas demand growth for ENN. After the 4,122 0 conversion/closure of coal-fired boilers with steam capacity of 2015A 2016A 2017F 2018F 2019F below 10 t/h in cities above prefecture-level, we are expecting the restriction to extend to more regions and more boilers such New Residential connections (m households) as those between 10 t/h to 35 t/h to be converted. We expect 2.33 2.3 2.1 ENN’s new connections from C&I customers to grow at a CAGR 2.0 1.8 of 5% from FY16 – FY20, of which 40% will come from coal- 1.86 1.7 to-gas conversions. 1.40

The natural gas price in China is expected to go down, which is 0.93 positive for demand. We expect policies to restrict returns on 0.47 intra-provincial pipeline transmission to be rolled out in the coming months and this may reduce city-gate price and end 0.00 2015A 2016A 2017F 2018F 2019F user selling price. In fact, some provinces such as Shandong and Zhejiang have lowered their intra-provincial tariffs by 7%-34%, Blended dollar margin (Rmb/m3) and more provinces are expected to follow. Assuming an 1.00 average 15% cut in tariff, the non-residential selling price is 0.77 expected to fall by Rmb0.03-0.06/m3. 0.80 0.73 0.65 0.64 0.63 0.60 LNG terminal to lower gas costs. The Zhoushan LNG terminal (phase 1) held under its parentco in Zhejiang is expected to 0.40 commence operations in 2H18, which will enable ENN to 0.20 procure cheap LNG supplies. Assuming oil price of US$50 per barrel, LNG costs is expected to be Rmb0.1/m3 lower than the 0.00 city gate price in Zhejiang. This can help ENN to lift the dollar 2015A 2016A 2017F 2018F 2019F margin by Rmb0.1/m3 for the region or it can pass to benefit to Source: Company, DBS Vickers end users in order to attract more customers. Assuming dollar margin is lifted by Rmb0.1/m3 for the region, the positive impact on earnings is c.5% of FY16 net profit.

Successful growth in integrated energy business. ENN is looking to transition from natural gas distributor into an integrated energy supplier and it targets to increase profit contribution from this segment to over 50% in five years. Although the target may be ambitious, we agree that there is ample growth potential in the distributed energy market.

ENN will be mainly investing in gas-fired distributive power projects. The projects will usually be signed under a 25-30 years contract to ensure continuity. The equity IRR requirement for each project will be >12%, which we believe is reasonable given that it is similar to other renewable energy projects in China.

Page 17 China/Hong Kong Company Guide ENN Energy Holdings Ltd

Share price chart

ENN Energy rel to HSI (Rebased J an 10 = 100) Acceleration of coal- 350 to-gas conversion and removal of ROA ov erhang 300

250

200

150

100

50

0 J ul -10 J ul -13 J ul -14 J ul -15 J ul -11 J ul -12 J ul -16 J ul -17 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Oct-11 Oct-12 Oct-13 Oct-16 Oct-10 Oct-14 Oct-15 Apr-10 Apr-11 Apr-14 Apr-15 Apr-16 Apr-12 Apr-13 Apr-17

Source: DBS Vickers

Page 18 China /Hong Kong Company Guide ENN Energy Holdings Ltd

Leverage & Asset Turnover (x) 1.1 1.00 Balance Sheet: 1.1 1.0 0.80 Healthy financials. Capital expenditure is expected to remain steady 1.0 0.9 at Rmb3bn each year going forward. Amid strong cash inflow, we 0.60 expect the net gearing to reach 37% in FY17 from 54% in FY16, 0.9 0.40 0.8 and ENN may boost dividend payout. 0.8 0.20 0.7 0.7 0.00 0.6 Share Price Drivers: 2015A 2016A 2017F 2018F 2019F Lower intra-provincial transmission tariff. We expect details to limit Gross Debt to Equity (LHS) Asset Turnover (RHS) intra-provincial transmission tariff to be released, which can lower Capital Expenditure RMBm end user selling price and boost demand. 3,500.0

3,000.0

More coal-to-gas conversion. Regulation to convert coal-fired boilers 2,500.0 with capacity of 10 – 35 t/h , and the implementation of additional 2,000.0 coal-free zones will help to generate demand for gas. 1,500.0 1,000.0

500.0 Key Risks: 0.0 2015A 2016A 2017F 2018F 2019F

Poor government policy execution. The Chinese government has Capital Expenditure (-) rolled out multiple supportive policies to the industry such as ROE regulating transmission tariff and accelerating coal-to-gas progress. 20.0% Gas demand will be negatively affected on slow execution.

15.0%

Company Background: 10.0% Established in 1993, ENN is one of the first privately owned gas distributors in China. The company is mainly involved in the 5.0% distribution of natural gas through city gas project operations, wholesale distribution and operating CNG/LNG refueling stations. It 0.0% 2015A 2016A 2017F 2018F 2019F is also involved in integrated energy supply (cooling, heating and steam and electricity), gas appliances, and materials. Forward PE Band (x) 21.3 +2sd: 20x 19.3

17.3 +1sd: 16.5x 15.3

13.3 Avg: 13x 11.3

9.3 -1sd: 9.5x

7.3 -2sd: 6x 5.3 Jan-14 Jan-15 Jan-16 Jan-17 PB Band (x)

4.2

3.7 +2sd: 3.6x

3.2 +1sd: 3.19x

2.7 Avg: 2.77x

-1sd: 2.35x 2.2 -2sd: 1.94x 1.7 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Source: Company, DBS Vickers

Page 19 China/Hong Kong Company Guide

ENN Energy Holdings Ltd

Key Assumptions FY Dec 2014A 2015A 2016A 2017F 2018F 2019F Total gas sales volume 10,148.1 11,312.4 14,385.9 19,048.6 23,926.2 28,567.5 (m m3) New Residential connections (m 1.3 1.7 1.8 2.0 2.1 2.3 households) Blended dollar margin 0.74 0.77 0.73 0.65 0.64 0.63 (Rmb/m3) Source: Company, DBS Vickers

Segmental Breakdown (RMB m) FY Dec 2014A 2015A 2016A 2017F 2018F 2019F Revenues (RMB m) Piped gas 17,485 18,680 17,900 22,895 28,257 33,833 Gas connection fees 4,403 5,508 5,611 6,034 6,343 6,705 Vehicle gas refuelling 3,849 3,931 3,169 3,101 3,099 3,170 Wholesalei of gas 2,898 3,429 6,153 9,537 12,875 15,450 Sales of other energy 54 83 153 214 321 482 Sales of gas appliances 110 138 238 288 331 381 Total 29,087 32,063 34,103 43,739 53,732 63,277 GPM (RMB m) Piped gas 2,658 2,858 3,240 3,812 4,698 5,612 Gas connection fees 2,778 3,465 3,591 3,741 3,933 4,157 Vehicle gas refuelling 521 400 274 241 233 232 Wholesalei of gas 45 36 97 124 180 216 Sales of other energy 1 16 17 2 35 72 Sales of gas appliances 44 55 100 107 123 141 Total 6,003 6,775 7,219 7,920 9,079 10,290 GPM Margins (%) Piped gas 15.2 15.3 18.1 16.6 16.6 16.6 Gas connection fees 63.1 62.9 64.0 62.0 62.0 62.0 Vehicle gas refuelling 13.5 10.2 8.6 7.8 7.5 7.3 Wholesalei of gas 1.6 1.0 1.6 1.3 1.4 1.4 Sales of other energy 1.9 19.3 11.1 1.0 11.0 15.0 Sales of gas appliances 40.0 39.9 42.0 37.0 37.0 37.0 Total 20.6 21.1 21.2 18.1 16.9 16.3 Source: Company, DBS Vickers

Page 20 China /Hong Kong Company Guide ENN Energy Holdings Ltd

Income Statement (RMB m)

FY Dec 2014A 2015A 2016A 2017F 2018F 2019F Revenue 29,087 32,063 34,103 43,739 53,732 63,277 Cost of Goods Sold (23,018 (25,197 (26,753 (35,664 (44,456 (52,750 Gross Profit 6,069 6,866 7,350 8,076 9,276 10,527 Other Opng (Exp)/Inc (2,693) (1,604) (1,046) (1,284) (1,610) (1,915) Operating Profit 3,376 5,262 6,304 6,791 7,666 8,612 Other Non Opg (Exp)/Inc 625 (700) (1,010) (481) (591) (696) Associates & JV Inc 629 695 571 700 860 1,012 Net Interest (Exp)/Inc (430) (542) (609) (520) (407) (311) Dividend Income 0 0 0 0 0 0 Exceptional Gain/(Loss) 547 (688) (1,061) (515) (591) (696) Pre-tax Profit 4,747 4,027 4,195 5,975 6,937 7,922 Tax (1,127) (1,306) (1,307) (1,613) (1,873) (2,139) Minority Interest (652) (685) (737) (945) (1,161) (1,367) Preference Dividend 0 0 0 0 0 0 Net Profit 2,968 2,036 2,151 3,416 3,903 4,415 Net Profit before Except. 2,421 2,724 3,212 3,932 4,494 5,111 EBITDA 5,447 6,300 6,929 8,087 9,097 10,173 Growth Revenue Gth (%) N/A 10.2 6.4 28.3 22.8 17.8 EBITDA Gth (%) N/A 15.7 10.0 16.7 12.5 11.8 Opg Profit Gth (%) N/A 55.9 19.8 7.7 12.9 12.3 Net Profit Gth (%) N/A (31.4) 5.6 58.8 14.2 13.1 Margins & Ratio Gross Margins (%) 20.9 21.4 21.6 18.5 17.3 16.6 Opg Profit Margin (%) 11.6 16.4 18.5 15.5 14.3 13.6 Net Profit Margin (%) 10.2 6.3 6.3 7.8 7.3 7.0 ROAE (%) 49.1 15.9 15.1 21.4 21.6 21.5 ROA (%) 13.8 4.5 4.4 6.4 6.9 7.2 ROCE (%) 16.6 10.9 12.1 13.2 14.9 16.4 Div Payout Ratio (%) 30.3 40.4 41.7 48.4 48.4 48.4 Net Interest Cover (x) 7.9 9.7 10.4 13.1 18.8 27.7 Source: Company, DBS Vickers

Page 21 China/Hong Kong Company Guide ENN Energy Holdings Ltd

Balance Sheet (RMB m) FY Dec 2014A 2015A 2016A 2017F 2018F 2019F

Net Fixed Assets 19,441 21,121 22,297 24,302 26,217 28,047 Invts in Associates & JVs 4,318 4,834 5,054 5,754 6,614 7,626 Other LT Assets 4,274 9,207 10,190 10,881 11,604 12,295 Cash & ST Invts 10,503 7,355 7,179 6,122 4,788 5,433 Inventory 510 404 515 539 662 780 Debtors 2,883 3,051 4,423 5,033 6,183 7,281 Other Current Assets 1,106 1,047 1,723 2,210 2,715 3,197 Total Assets 43,035 47,019 51,381 54,840 58,783 64,659

ST Debt 1,530 6,654 4,644 7,159 3,504 1,504 Creditors 9,630 9,381 10,472 13,093 16,321 19,366 Other Current Liab 2,380 3,373 3,225 4,136 5,081 5,984 LT Debt 12,970 9,026 12,147 6,632 6,632 6,632 Other LT Liabilities 1,984 2,490 3,039 3,039 3,039 3,039 Shareholder’s Equity 12,098 13,468 14,966 16,948 19,211 21,772 Minority Interests 2,443 2,627 2,888 3,833 4,994 6,362 Total Cap. & Liab. 43,035 47,019 51,381 54,840 58,783 64,659

Non-Cash Wkg. Capital (7,511) (8,252) (7,036) (9,447) (11,842) (14,091) Net Cash/(Debt) (3,997) (8,325) (9,612) (7,669) (5,348) (2,703) Debtors Turn (avg days) 18.1 33.8 40.0 39.5 38.1 38.8 Creditors Turn (avg days) 79.2 143.6 141.0 124.3 124.0 126.4 Inventory Turn (avg days) 4.2 6.9 6.5 5.6 5.1 5.1 Asset Turnover (x) 1.4 0.7 0.7 0.8 0.9 1.0 Current Ratio (x) 1.1 0.6 0.8 0.6 0.6 0.6 Quick Ratio (x) 1.0 0.5 0.6 0.5 0.4 0.5 Net Debt/Equity (X) 0.3 0.5 0.5 0.4 0.2 0.1 Net Debt/Equity ex MI (X) 0.3 0.6 0.6 0.5 0.3 0.1 Capex to Debt (%) 17.3 16.0 18.2 21.8 29.6 36.9 Z-Score (X) NA NA NA NA NA NA

Source: Company, DBS Vickers

Page 22 China /Hong Kong Company Guide ENN Energy Holdings Ltd

Cash Flow Statement (RMB m) FY Dec 2014A 2015A 2016A 2017F 2018F 2019F

Pre-Tax Profit 4,747 4,027 4,195 5,975 6,937 7,922 Dep. & Amort. 817 1,043 1,064 1,077 1,163 1,244 Tax Paid (1,137) (1,207) (1,452) (1,613) (1,873) (2,139) Assoc. & JV Inc/(loss) (629) (695) (571) (700) (860) (1,012) (Pft)/ Loss on disposal of FAs 0 0 0 0 0 0 Chg in Wkg.Cap. 1,686 481 751 1,987 1,955 1,829 Other Operating CF (401) 1,067 1,379 (1,432) (1,666) (1,850) Net Operating CF 5,083 4,716 5,366 5,294 5,656 5,994 Capital Exp.(net) (2,507) (2,514) (3,049) (3,000) (3,000) (3,000) Other Invts.(net) (11) (4,069) (1,315) 0 0 0 Invts in Assoc. & JV (187) (135) (324) 0 0 0 Div from Assoc & JV 334 354 802 0 0 0 Other Investing CF (361) (498) 46 (773) (801) (765) Net Investing CF (2,732) (6,862) (3,840) (3,773) (3,801) (3,765) Div Paid (414) (709) (705) (1,435) (1,639) (1,854) Chg in Gross Debt 2,600 397 493 (3,000) (3,655) (2,000) Capital Issues 3 0 3 0 0 0 Other Financing CF (852) (706) (1,527) 1,857 2,106 2,270 Net Financing CF 1,337 (1,018) (1,736) (2,578) (3,188) (1,584) Currency Adjustments (7) 16 18 0 0 0 Chg in Cash 3,681 (3,148) (192) (1,057) (1,333) 644 Opg CFPS (RMB) 3.14 3.91 4.26 3.06 3.42 3.85 Free CFPS (RMB) 2.38 2.03 2.14 2.12 2.46 2.77 Source: Company, DBS Vickers

Page 23 China / Hong Kong Company Guide

China Gas Holdings

Version 1 | Bloomberg: 384 HK Equity | Reuters: 0384.HK

Refer to important disclosures at the end of this report DBS Group Research . Equity 29 Sep 2017

BUY (Initiate coverage) Leading the village invasion Last Traded Price ( 26 Sep 2017):HK$22.90 (HSI : 27,513) · Major beneficiary of rural coal-to-gas conversions Price Target 12-mth: HK$27.10 (18% upside) · Expect further cut in transmission tariffs, stimulating Analyst demand Tony WU CFA +852 2971 1708 [email protected] · We forecast stronger than peers’ gas sales volume Patricia YEUNG +852 2863 8908 CAGR of 31% in FY17-FY20 [email protected]

· Initiating coverage with BUY rating and HK$27.10 TP Price Relative HK$ Relative Index Growth leader in gas distribution. We initiate coverage on China 25.4 249 Gas Holdings (CGH) with a BUY rating. CGH is the first mover 23.4 229 21.4 209 and major beneficiary of the strong growth of rural coal-to-gas 19.4 189 17.4 conversions, driving its earnings growth to the top of the industry 169 15.4 149 13.4 at 27% CAGR from FY17 to FY20. Boosted by government's 11.4 129 support to increase natural gas usage, we believe the re-rating 9.4 109 7.4 89 cycle for Chinese gas distributors has more room to run and CGH Sep-13 Sep-14 Sep-15 Sep-16 Sep-17 will be in a solid position to ride on the uptrend. China Gas Holdings (LHS) Relative HSI (RHS)

Forecasts and Valuation Where we differ. We are more bullish than the market on CGH FY Mar (HK$ m) 2017A 2018F 2019F 2020F as we are optimistic on the prospects of rural coal-to-gas Turnover 31,993 41,564 50,636 58,768 EBITDA 7,825 10,044 12,133 13,641 conversions, which is the key driver in gas sales volume and Pre-tax Profit 5,902 8,393 10,486 12,021 connection fees. Net Profit 4,148 5,965 7,418 8,492 Net Pft (Pre Ex) (core 4,475 5,965 7,418 8,492 profit) Potential catalyst. The potential announcement of a cut in intra- EPS (HK$) 0.85 1.20 1.49 1.71 provincial pipeline transmission tariffs and our optimistic view on Core EPS (HK$) 0.91 1.20 1.49 1.71 the progress of rural coal-to-gas conversions are expected to EPS Gth (%) 84.6 42.1 24.4 14.5 drive up sales volume growth, and share price. Core EPS Gth (%) 21.8 31.7 24.4 14.5 Diluted EPS (HK$) 0.85 1.20 1.49 1.71 DPS (HK$) 0.25 0.36 0.44 0.51 Valuation: BV Per Share (HK$) 4.19 4.98 6.03 7.24 We initiate coverage on CGH with a BUY rating. We derive a TP PE (X) 27.1 19.1 15.3 13.4 of HK$27.1 based on DCF valuation. We have assumed beta of Core PE (X) 25.1 19.1 15.3 13.4 1.1, 7.2% WACC (equity risk premium of 7%, risk free rate of P/Cash Flow (X) 27.3 15.5 13.1 11.6 3%, and 3.6% after tax cost of debt) and 1% terminal growth. P/Free CF (X) 97.1 29.7 22.0 16.7 EV/EBITDA (X) 17.2 13.4 10.9 9.4 Key Risks to Our View: Net Div Yield (%) 1.1 1.6 1.9 2.2 P/Book Value (X) 5.5 4.6 3.8 3.2 Slowdown in the expansion of rural coal-to-gas projects from Net Debt/Equity (X) 0.8 0.6 0.4 0.2 increasing competition or lack of government support. ROAE (%) 21.6 26.3 27.1 25.8 At A Glance Earnings Rev (%): New New New 4,969 Consensus EPS (HK$) 1.15 1.35 1.55 Issued Capital (m shrs) Other Broker Recs: B: 14 S: 2 H: 5 Mkt. Cap (HK$m/US$m) 113,779 / 14,564 Major Shareholders ICB Industry: Utilities Beijing Enterprises Gp. Co. Ltd. (%) 24.8 ICB Sector: Gas, Water & Multiutilities Liu Ming Hui (%) 21.9 Principal Business: Investment, construction and operation of city gas pipeline projects Chiu Tat Jung Daniel (%) 19.6 Source of all data on this page: Company, DBSV, Thomson Reuters, HKEX Chey Taewon (%) 15.7 Free Float (%) 18.1 3m Avg. Daily Val. (US$m) 15.8

ed- JS / sa- DL China/Hong Kong Company Guide China Gas Holdings

Average connection fee - residential (HK$)

3376 3376 3376 3,409 3094 CRITICAL FACTORS TO WATCH 2938 2,922 Critical Factors 2,435 First mover into rural coal-to-gas. We believe the company’s 1,948 main earnings driver will be from rural coal-to-gas conversion 1,461 and the market has not fully appreciate its growth potential. We 974 estimate the earnings contribution from rural coal-to-gas 487 contribution will amount to >10% and >20% in FY18 and FY19. 0 2016A 2017A 2018F 2019F 2020F The government started to roll out supportive policies for rural coal-to-gas conversion this year and we believe the potential New connections - residential (m households) market size exceeds 40m households. CGH gained early mover 5.0 advantage for being the first aggressive player to tap into the 5.10 4.8 market. 4.08 3.7

3.06 The number of township coal-to-gas replacement only reached 2.6 2.1 34,432 by the end of FY17. By the end of March 2017, CGH 2.04 completed registration of 10 new companies and signed contracts to convert 500,000 village users from coal to natural 1.02 gas, including 20,000 users from Xiongan New Area. By the end 0.00 of August, the contracted users already reached 2.1m. We 2016A 2017A 2018F 2019F 2020F believe the new connection from township conversion projects Gas sales volume (m m3) will exceed 1m in FY17, which can help to boost residential new connections. Our forecast for new connection of residential 28,286 27,731.4 users amounts to 3.7m, 4.8m, and 5m in FY18, FY19, and FY20 22,185.1 22,629 respectively. 17,065.5 16,972 12,224.3 Lower transmission tariff, higher demand. We believe the intra- 11,314 9,860.0 provincial tariff will be cut further amid government’s intention to intensify the regulation for midstream. This will lower end 5,657 selling price without affecting distribution dollar margin, which 0 will boost gas demand growth and is positive for share price. 2016A 2017A 2018F 2019F 2020F We believe details in regards to the return regulation of intra- provincial transmission tariff to be released in the coming Dollar margin (Rmb/m3) months. We have seen tariff cuts in a few provinces such as 0.69 0.68 0.68 Shandong and Jiangxi ranging from 7% to 34%, we expect 0.68 more provinces will follow. Assuming 15% cut in intra- 0.67 provincial transmission tariff, the city-gate price and non- 0.66 0.66 0.66 residential selling price is expected to be reduced by Rmb0.03- 0.65 0.06/m3 0.65 . 0.64 0.63 2015A 2016A 2017A 2018F 2019F Source: Company, DBS Vickers

Page 25 China /Hong Kong Company Guide China Gas Holdings

Share price chart

China Gas rel to HSI (Rebased J an 10 = 100)

560 Acceleration of rural coal-to- 510 gas conversion 460 410 360 310 260 210 160 110 60 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17 May-10 May-11 May-12 May-13 May-14 May-15 May-16 May-17

Source: DBS Vickers

Page 26 China/Hong Kong Company Guide China Gas Holdings

Leverage & Asset Turnover (x) Balance Sheet: 0.9 Lower net gearing level. Strong earnings growth in the next few 1.00 0.9 0.8 years is expected to lower net gearing ratio and support dividend 0.80 0.8 payout. We forecast FY18 net gearing will decline to 58% from 0.60 0.7 79% in FY17, which supports CGH’s intention to increase 0.7 dividend payout ratio gradually. 0.40 0.6 0.20 0.6

0.00 0.5 Share Price Drivers: 2016A 2017A 2018F 2019F 2020F Gross Debt to Equity (LHS) Asset Turnover (RHS) Coal-to-gas conversion. The coal-to-gas conversion progress in Capital Expenditure China will determine the ramp up speed of gas consumption. The HK$m market share gained in rural coal-to-gas conversion will help to 3,600.0 3,500.0 drive up the share price. 3,400.0 3,300.0 3,200.0 Lower gas selling price. The cut in city-gate price will result in 3,100.0 lowering of end selling price and boost in gas consumption. We 3,000.0 2,900.0 are anticipating another round of pipeline transmission tariff cut 2,800.0 to take place within the next few months. 2,700.0 2,600.0 2016A 2017A 2018F 2019F 2020F

Capital Expenditure (-) Key Risks: ROE

Sluggish economic growth in China. The natural gas sales volume 25.0% is sensitive to the underlying economic growth. A slowdown in economic growth have negative impact to demand for gas 20.0% demand from C&I customers. 15.0%

10.0% Lack of government policy enforcement. Poor execution in supportive government policies can negatively affect the 5.0% sentiment and performance for gas sector. For instance, a 0.0% prolonged subsidy payment delay for rural customers can 2016A 2017A 2018F 2019F 2020F discourage new customers coming into the market Forward PE Band (x) 24.9

22.9 Company Background: 20.9 +2sd: 21.6x

CGH is mainly involved in the in the construction and operation of 18.9 +1sd: 18.1x city gas pipelines as well as the sale of natural gas and liquefied 16.9 petroleum gas (LPG) in China. The company also invests in gas 14.9 Avg: 14.6x terminals, storage, transportation, logistics systems and vehicle 12.9 10.9 -1sd: 11.2x refilling stations. CGH was listed in 2001 on the Hong Kong Stock 8.9 -2sd: 7.7x Exchange. 6.9 Sep-13 Sep-14 Sep-15 Sep-16 PB Band (x) 5.5

5.0

4.5 +2sd: 4.47x

4.0 +1sd: 3.94x 3.5 Avg: 3.4x 3.0 -1sd: 2.86x 2.5 -2sd: 2.33x 2.0 Mar-14 Mar-15 Mar-16 Mar-17 Source: Company, DBS Vickers

Page 27 China /Hong Kong Company Guide China Gas Holdings

Key Assumptions FY Mar 2016A 2017A 2018F 2019F 2020F Average connection fee 3,093.6 2,937.6 3,375.7 3,375.7 3,375.7 - residential (HK$) New connections - residential (m 2.1 2.6 3.7 4.8 5.0 households) Gas sales volume (m 9,860.0 12,224.3 17,065.5 22,185.1 27,731.4 m3)

Dollar margin (Rmb/m3) 0.68 0.68 0.66 0.65 0.64 Source: Company, DBS Vickers

Segmental Breakdown (HK$ m)

FY Mar 2016A 2017A 2018F 2019F 2020F Revenues (HK$ m) Piped gas 12,996 13,779 18,506 23,300 29,179 Connection fee 4,794 5,748 8,807 11,617 12,168 LPG 11,349 11,655 12,871 13,649 14,317 Value added services 358 812 1,380 2,070 3,105 Total 29,497 31,993 41,564 50,636 58,768 GPM (HK$ m) Piped gas 2,391 2,508 3,184 4,082 5,031 Connection fee 3,293 4,225 5,645 6,686 6,814 LPG 1,379 1,313 1,390 1,433 1,475 Value added services 73 376 621 931 1,397 Total 7,136 8,421 10,841 13,133 14,716 GPM Margins (%) Piped gas 18.4 18.2 17.2 17.5 17.2 Connection fee 7 68. 73.5 64.1 57.6 56.0 LPG 12.2 11.3 10.8 10.5 10.3 Value added services N/A N/A N/A N/A N/A Total 24.2 26.3 26.1 25.9 25.0 Source: Company, DBS Vickers

Page 28 China/Hong Kong Company Guide China Gas Holdings

Income Statement (HK$ m)

FY Mar 2016A 2017A 2018F 2019F 2020F Revenue 29,497 31,993 41,564 50,636 58,768 Cost of Goods Sold (22,283 (23,616 (30,723 (37,503 (44,052 Gross Profit 7,214 8,377 10,841 13,133 14,716 Other Opng (Exp)/Inc (2,649) (2,905) (3,509) (4,174) (4,668) Operating Profit 4,565 5,472 7,332 8,959 10,049 Other Non Opg (Exp)/Inc 902 488 447 545 632 Associates & JV Inc 383 904 1,247 1,519 1,763 Net Interest (Exp)/Inc (689) (636) (633) (537) (423) Dividend Income 0 0 0 0 0 Exceptional Gain/(Loss) (1,443) (327) 0 0 0 Pre-tax Profit 3,718 5,902 8,393 10,486 12,021 Tax (984) (1,208) (1,717) (2,202) (2,524) Minority Interest (460) (547) (711) (866) (1,005) Preference Dividend 0 0 0 0 0 Net Profit 2,273 4,148 5,965 7,418 8,492 Net Profit before Except. 3,716 4,475 5,965 7,418 8,492 EBITDA 6,888 7,825 10,044 12,133 13,641 Growth Revenue Gth (%) (6.9) 8.5 29.9 21.8 16.1 EBITDA Gth (%) 11.9 13.6 28.4 20.8 12.4 Opg Profit Gth (%) 17.9 19.9 34.0 22.2 12.2 Net Profit Gth (%) (32.6) 82.5 43.8 24.4 14.5 Margins & Ratio Gross Margins (%) 24.5 26.2 26.1 25.9 25.0 Opg Profit Margin (%) 15.5 17.1 17.6 17.7 17.1 Net Profit Margin (%) 7.7 13.0 14.4 14.6 14.5 ROAE (%) 12.5 21.6 26.3 27.1 25.8 ROA (%) 4.4 7.3 9.5 10.9 11.6 ROCE (%) 7.7 9.4 11.7 13.5 14.5 Div Payout Ratio (%) N/A N/A N/A N/A N/A Net Interest Cover (x) 6.6 8.6 11.6 16.7 23.8 Source: Company, DBS Vickers

Page 29 China /Hong Kong Company Guide China Gas Holdings

Balance Sheet (HK$ m) FY Mar 2016A 2017A 2018F 2019F 2020F

Net Fixed Assets 22,850 25,783 28,357 30,840 32,733 Invts in Associates & JVs 8,903 9,578 9,578 9,578 9,578 Other LT Assets 8,134 9,263 9,926 10,550 11,102 Cash & ST Invts 5,508 4,752 5,001 4,377 5,451 Inventory 1,213 1,679 1,879 2,289 2,656 Debtors 5,094 6,067 7,250 8,832 10,251 Other Current Assets 1,831 2,865 3,325 3,798 4,408 Total Assets 53,533 59,987 65,316 70,263 76,178

ST Debt 10,324 10,873 8,873 8,873 5,873 Creditors 8,549 9,650 11,838 14,450 16,974 Other Current Liab 929 2,056 2,286 2,532 2,938 LT Debt 12,010 12,745 12,745 8,745 7,745 Other LT Liabilities 756 735 735 735 735 Shareholder’s Equity 17,853 20,550 24,751 29,975 35,954 Minority Interests 3,112 3,377 4,088 4,954 5,958 Total Cap. & Liab. 53,533 59,987 65,316 70,263 76,178

Non-Cash Wkg. Capital (1,340) (1,095) (1,671) (2,064) (2,598) Net Cash/(Debt) (16,826) (18,866) (16,617) (13,241) (8,168) Debtors Turn (avg days) 64.5 63.7 58.5 58.0 59.3 Creditors Turn (avg days) 132.9 146.6 132.0 131.8 133.8 Inventory Turn (avg days) 20.7 23.3 21.9 20.9 21.1 Asset Turnover (x) 0.6 0.6 0.7 0.7 0.8 Current Ratio (x) 0.7 0.7 0.8 0.7 0.9 Quick Ratio (x) 0.5 0.5 0.5 0.5 0.6 Net Debt/Equity (X) 0.8 0.8 0.6 0.4 0.2 Net Debt/Equity ex MI (X) 0.9 0.9 0.7 0.4 0.2 Capex to Debt (%) 14.1 12.5 16.2 19.9 22.0 Z-Score (X) NA NA NA NA NA

Source: Company, DBS Vickers

Page 30 China/Hong Kong Company Guide China Gas Holdings

Cash Flow Statement (HK$ m) FY Mar 2016A 2017A 2018F 2019F 2020F

Pre-Tax Profit 3,718 5,902 8,393 10,486 12,021 Dep. & Amort. 1,037 960 1,017 1,108 1,196 Tax Paid (992) (1,102) (1,717) (2,202) (2,524) Assoc. & JV Inc/(loss) 0 0 0 0 0 (Pft)/ Loss on disposal of FAs 0 0 0 0 0 Chg in Wkg.Cap. 1,193 (1,473) 806 620 737 Other Operating CF 906 (170) (1,171) (1,338) (1,615) Net Operating CF 5,862 4,116 7,328 8,674 9,815 Capital Exp.(net) (3,154) (2,959) (3,500) (3,500) (3,000) Other Invts.(net) (362) (442) 0 0 0 Invts in Assoc. & JV (414) (351) 0 0 0 Div from Assoc & JV 383 50 0 0 0 Other Investing CF (454) (411) (756) (716) (642) Net Investing CF (4,001) (4,112) (4,256) (4,216) (3,642) Div Paid (942) (954) (1,765) (2,194) (2,512) Chg in Gross Debt 1,693 1,430 (2,000) (4,000) (4,000) Capital Issues (947) (539) 0 0 0 Other Financing CF (1,131) (458) 940 1,111 1,411 Net Financing CF (1,327) (520) (2,824) (5,083) (5,101) Currency Adjustments (265) (256) 0 0 0 Chg in Cash 268 (772) 248 (626) 1,073 Opg CFPS (HK$) 0.94 1.14 1.31 1.62 1.83 Free CFPS (HK$) 0.55 0.24 0.77 1.04 1.37 Source: Company, DBS Vickers

Page 31

China Gas Utilities Sector Beijing Enterprises Holding

Bloomberg: 392 HK| Reuters: 392.HK Refer to important disclosures at the end of this report

NOT RATED Multi-pronged growth Last Traded Price ( 26 Sep 2017): HK$40.90 (HIS: 27,513) · Expect gas sales volume growth to reach 3% in FY17 · Major overhang from tariff cut on Shaanxi-Beijing line removed, Analyst expect 10-15% volume growth in FY18 as line IV commence Tony WU CFA +852 2971 1708 operation [email protected] Patricia YEUNG +852 2863 8908 · Wastewater treatment will be main earnings driver for non-gas [email protected] segment · Attractive valuation at 7.3x FY18PE. Price Relative HK$ Relative Index Steady gas distribution business. Beijing Gas’ gas supply network 100.0 200 covers all urban areas in Beijing and >95% of surrounding suburban counties. The gas sales volume is expected to grow at a steady 3% 150 in FY17. We believe dollar margin will be relatively stable at 50.0 100 Rmb0.45/m3, which is below peers. For China Gas, we are 50 expecting the earnings growth to reach 44% and 24% in FY17 and 0.0 0 FY18 respectively, from strong rural coal-to-gas conversions and gas 12 13 15 16 12 14 17 16 ------sales volume growth. Jul Jul Jan Oct Sep Apr Dec Mar Overhang removed for Shaanxi-Beijing line. The cut in long distance Beijing Enterprises Hdg. (LHS) transmission pipeline tariff announced in late August has removed Relative HSI (RHS) the major overhang on BEH’s share price as the cut was lower than Forecasts and Valuation market expectation. The first three lines are operating at close to full FY Dec (HK$m) 2013A 2014A 2015A 2016A capacity. The Shaanxi-Beijing line IV is expected to commence Turnover 42,361 47,936 60,150 55,959 operations by the end of 2017 and utilisation will gradually ramp up. EBITDA 5,768 5,581 5,803 7,188 The transmission volume is expected to increase by 10-15% in FY18. Pre-tax Profit 5,301 5,970 6,638 7,497 Net Profit 4,184 4,832 5,667 6,236 Strong growth in water. The earnings contribution for the Net Pft (Pre Ex.) 4,184 4,832 5,667 6,236 wastewater treatment, beer, and solid waste treatment businesses EPS (HK$) 3.61 3.78 4.41 4.92 was 22%, 6%, and 4% in 1H17. Riding on the acceleration of PPP EPS Gth (%) 27.1 4.7 16.7 11.6 Diluted EPS (HK$) 3.54 3.77 4.41 4.92 projects and strong project acquisition ability, Beijing Enterprises DPS (HK$) 0.85 0.90 0.95 0.95 Water (BEW) will be the earnings driver for the non-gas business as BV Per Share (HK$) 42.53 44.52 45.39 45.42 it is expected to achieve a strong growth of 51% and 24% in FY17 PE (X) 11.3 10.8 9.3 8.3 P/Cash Flow (X) 9.2 n.m. 3.9 4.7 and FY18 respectively. P/Free CF (x) n.m. n.m. 6.3 9.6 Attractive valuation. BEH is currently trading at 7.3x FY18PE, which EV/EBITDA (X) 12.6 16.0 14.5 13.5 Net Div Yield (%) 2.1 2.2 2.3 2.3 is c.40% below its peers in the gas distribution industry. We reckon P/Book Value (X) 1.0 0.9 0.9 0.9 the valuation is attractive given the long-distance pipeline Net Debt/Equity (X) 0.3 0.5 0.4 0.6 transmission tariff cut overhang has been removed, and strong ROAE (%) 8.9 8.7 9.8 10.8 growth from China Gas and BEW will drive earnings. ICB Industry: Utilities ICB Sector: Gas, Water & Multiutilities At A Glance Principal Business: Investment in city gas projects, transmission Issued Capital - H shares (m shs) 1,262 pipelines, and wastes treatment projects Total Mkt Cap (HK$m/US$m) 51,618 / 6,610 Source of all data on this page: Company, DBSV, Thomson Reuters, Major Shareholders (%) HKEX Beijing Enterprises Group 61.96 Free Float (%) 38.04 3m Avg. Daily Val. (US$m) 12.6

DBSV's discussion of the issuer in this report will not be continuously followed. Accordingly, this report is being provided as a stand-alone analysis and recipients of this report should not expect additional reports relating to this issuer, unless so decided by DBSV. ed- JS/ sa- AH China Gas Utilities Sector Beijing Enterprises Holding

Income Statement (HK$m) Balance Sheet (HK$m) FY Dec 2013A 2014A 2015A 2016A FY Dec 2013A 2014A 2015A 2016A Revenue 42,361 47,936 60,150 55,959 Net Fixed Assets 40,782 41,280 39,624 44,958 Cost of Goods Sold (34,023) (39,360) (51,099) (46,523) Invts in Assocs & JVs 29,402 33,506 31,792 33,117 Gross Profit 8,337 8,576 9,051 9,436 Other LT Assets 13,231 16,365 19,712 32,798 Other Opg (Exp)/Inc (4,897) (5,418) (6,010) (5,573) Cash & ST Invts 10,795 11,208 13,767 15,915 Operating Profit 3,441 3,158 3,042 3,862 Inventory 5,661 5,393 4,644 4,953 Other Non Opg (Exp)/Inc 73 9 27 (40) Debtors 4,393 5,321 3,544 3,813 Associates & JV Inc 2,743 3,812 4,708 4,943 Other Current Assets 5,357 11,102 11,683 9,156 Net Interest (Exp)/Inc (956) (1,009) (1,139) (1,269) Total Assets 109,622 124,174 124,766 144,709 Exceptional Gain/(Loss) - - - - Pre-tax Profit 5,301 5,970 6,638 7,497 ST Debt 7,290 17,776 7,048 18,419 Ta x (545) (565) (682) (858) Creditors ---- Minority Interest (572) (574) (289) (403) Other Current Liab 18,614 17,342 19,260 20,842 Preference Dividend - - - - LT De bt 18,479 19,439 27,708 32,211 Net Profit 4,184 4,832 5,667 6,236 Other LT Liabilities 1,170 1,521 2,099 5,199 Net Profit before Except. 4,184 4,832 5,667 6,236 Shareholder's Equity 54,021 57,176 58,187 57,321 EBITDA 5,768 5,581 5,803 7,188 Minority Interests 10,047 10,920 10,465 10,718 Revenue Gth (%) 19.1 13.2 25.5 (7.0) Total Cap. & Liab. 109,622 124,174 124,766 144,709 EBITDA Gth (%) 23.0 (3.2) 4.0 24 Opg Profit Gth (%) 21.7 (8.2) (3.7) 27.0 Non-Cash Wkg. Cap ---- Effective Tax Rate (%) 10.3 9.5 10.3 11.4 Net Cash/(Debt) (14,974) (26,007) (20,989) (34,714)

Cash Flow Statement (HK$m) Rates & Ratio FY Dec 2013A 2014A 2015A 2016A FY Dec 2013A 2014A 2015A 2016A Pre-Tax Profit 5,301 5,970 6,638 7,497 Gross Margin (%) 19.7 17.9 15.0 16.9 Dep. & Amort. 2,328 2,423 2,761 3,326 Opg Profit Margin (%) 8.1 6.6 5.1 6.9 Tax Paid (717) (625) (500) (663) Net Profit Margin (%) 9.9 10.1 9.4 11.1 Assoc. & JV Inc/(loss) (2,737) (3,812) (4,708) (4,950) ROAE (%) 8.9 8.7 9.8 10.8 (Pft)/ Loss on disposal of FAs 30 37 83 149 ROA (%) 4.2 4.1 4.6 4.6 Non-Cash Wkg. Cap. 308 (7,515) 6,969 4,733 ROCE (%) 4.2 3.2 2.9 3.3 Other Operating CF 653 3,515 2,387 824 Div Payout Ratio (%) 20.6 23.2 20.8 19.4 Net Operating CF 5,166 (6) 13,630 10,915 Interest Cover (x) 3.6 3.1 2.7 3.0 Capital Exp. (net) (6,411) (2,680) (4,051) (4,289) Asset Turnover (x) 0.4 0.4 0.5 0.4 Other Invts. (net) 173 (3,284) (27) (10,159) Debtors Turn (days) 29.3 37.0 26.9 24.0 Invts. in Assoc. & JV (665) (2,498) (268) (970) Div from Assoc. & JV - - - - Creditors Turn (days) n.a. n.a. n.a. n.a. Other Investing CF - - (2,400) (2,742) Inventory Turn (days) 62.2 51.3 35.8 37.6 Net Investing CF (6,903) (8,462) (6,747) (18,160) Current Ratio (x) 1.0 0.9 1.3 0.9 Div Paid (864) (1,123) (1,182) (1,212) Quick Ratio (x) 0.8 0.8 1.1 0.7 Chg in Gross Debt 285 11,319 (1,592) 11,966 Net Debt/Equity (X) 0.3 0.5 0.4 0.6 Capital Issues - (69) (92) (705) Capex to Debt (%) 24.9 7.2 11.7 8.5 Other Financing CF 933 (567) (1,032) (948) N. Cash/(Debt)PS (HK$) (11.79) (20.25) (16.37) (27.50) Net Financing CF 354 9,559 (3,898) 9,100 Opg CFPS (HK$) 4.45 (0.01) 10.62 8.62 Chg in Cash (1,383) 1,091 2,986 1,855 Free CFPS (HK$) (1.82) (2.98) 6.54 4.27 Interim Income Statement (HK$m) Segmental Breakdown (HK$m) / Key Assumptions FY Dec 2H15 1H16 2H16 1H17 FY Dec 2013A 2014A 2015A 2016A Revenue 30,841 28,417 27,542 27,597 Revenues Cost of Goods Sold (27,075) (23,428) (23,095) (22,771) Piped Gas Operation 25,159 32,438 43,946 39,379 Gross Profit 3,766 4,989 4,447 4,825 Other Oper. (Exp)/Inc (3,059) (2,630) (2,943) (2,615) Brewery 16,837 15,151 14,069 11,590 Operating Profit 707 2,359 1,504 2,211 Solid Waste Treatment -- 2,055 4,929 Other Non Opg (Exp)/Inc 2,470 22 - 140 Corporate and Others - IT 364 346 79 61 Associates & JV Inc 2,377 2,932 Technical Support Net Interest (Exp)/Inc (522) (454) - (561) Tota l 42,361 47,936 60,150 55,959 Exceptional Gain/(Loss) - - - - Pre-tax Profit 2,655 4,303 3,194 4,722 Ta x (291) (430) (427) (515) Minority Interest 200 (449) 46 (431) Net Profit 2,564 3,423 2,813 3,776 Net profit bef Except. 2,564 3,423 2,813 3,776 Growth Revenue Gth (%) 20.9 (3.0) (10.7) (2.9) Opg Profit Gth (%) (0.5) 1.0 112.7 (6.3) Net Profit Gth (%) 27.0 10.3 9.7 10.3 Margins & Ratio Gross Margins (%) 12.2 17.6 16.1 17.5 Opg Profit Margins (%) 2.3 8.3 5.5 8.0 Net Profit Margins (%) 8.3 12.0 10.2 13.7 Source: Company, DBS Vickers

Page 33

China Gas Utilities Sector China Resources Gas

Bloomberg: 1193 HK | Reuters: 1193.HK Refer to important disclosures at the end of this report

NOT RATED Gas powered Last Traded Price ( 26 Sep 2017): HK$26.6 (HSI: 27,513) · Solid project acquisition ability with support from China Resources Company · Mainly focusing on city-gas projects Analyst Tony WU CFA +852 2971 1708 · Higher exposure to regions with risks of cuts in dollar [email protected] margin Patricia YEUNG +852 2863 8908 · Valuation is undemanding, trading at 13.5x FY18 PE [email protected]

Solid SOE background. Leveraging on China Resources Company, one of the largest SOEs in China, China Resources Price Relative Gas (CRG) has strong project acquisition ability and is the HK$ Relative Index largest city gas distributor in China with 26.5m connected 40.0 300 customers and 230 projects. Leveraging on its SOE background, 30.0 it has clinched a high proportion of large city-gas projects 200 20.0 including 72 projects in prefecture level cities, 14 projects in 100 provincial capitals, and 3 projects in direct administrative 10.0 municipalities. 0.0 0 12 13 15 16

12 Eyeing opportunities in city-gas projects. CRG will mainly focus 14 17 16 ------on development of city-gas projects with concession Jul Jul Jan Oct Sep Apr Dec Mar agreements. CRG will ride on opportunities from coal-to-gas China Resources Gas Gp. (LHS) Relative HSI (RHS) conversion and tackle coal-fired boilers conversion and commercial customers. We expect gas sales volume growth to Forecasts and Valuation be c.20% in FY17, which is above industry average. For new FY Dec (HK$m) 2013A 2014A 2015A 2016A connections, it is expected to add 2.6m residential customers in Turnover 22,288 28,717 32,834 32,916 FY17, which looks achievable with 1.29m added during 1H17. EBITDA 3,887 5,070 5,752 7,082 Pre-tax Profit 3,811 4,757 5,311 6,189 Fair valuation. CRG is currently trading at 13.5x FY18PE and the Net Profit 2,161 2,480 2,838 3,289 earnings growth is estimated to reach a CAGR of 14% from Net Pft (Pre Ex.) 2,161 2,480 2,838 3,289 FY16-FY19, based on consensus estimates. We believe the EPS (HK$) 1.00 1.14 1.30 1.51 EPS Gth (%) 22.0 14.0 14.0 16.2 valuation is undemanding at this level. However, given the Diluted EPS (HK$) 1.00 1.14 1.30 1.51 below peers earnings growth and higher exposure to regions DPS (HK$) 0.22 0.25 0.32 0.45 with dollar margin risks, we prefer ENN and China Gas, which BV Per Share (HK$) 6.38 7.22 7.65 7.99 PE (X) 26.6 23.3 20.5 17.6 are our sector picks. P/Cash Flow (X) 9.8 10.0 9.9 7.6 P/Free CF (x) 41.2 34.2 42.0 17.3 At A Glance EV/EBITDA (X) 17.2 13.5 11.8 10.0 Issued Capital - H shares (m shs) 2,224 Net Div Yield (%) 0.8 0.9 1.2 1.7 Total Mkt Cap (HK$m/US$m) 59,159 / 7,575 P/Book Value (X) 4.2 3.7 3.5 3.3 Major Shareholders (%) Net Debt/Equity (X) 0.3 0.3 0.3 0.4 China Resources Co., Limited 63.95 ROAE (%) 16.7 16.4 17.2 18.9 The Capital Group Companies, Inc. 8.05 Free Float (%) 28.00 ICB Industry: Utilities ICB Sector: Gas, Water & Multiutilities 3m Avg. Daily Val. (US$m) 13.3 Principal Business: Investment, construction, and operation of city gas projects Source of all data on this page: Company, DBSV, Thomson Reuters, HKEX

DBSV's discussion of the issuer in this report will not be continuously followed. Accordingly, this report is being provided as a stand-alone analysis and recipients of this report should not expect additional reports relating to this issuer, unless so decided by DBSV. ed- JS/ sa- AH China Gas Utilities Sector China Resource Gas

Income Statement (HK$m) Balance Sheet (HK$m) FY Dec 2013A 2014A 2015A 2016A FY Dec 2013A 2014A 2015A 2016A Revenue 22,288 28,717 32,834 32,916 Net Fixed Assets 19,660 22,805 24,173 25,581 Cost of Goods Sold (14,666) (20,003) (22,835) (21,732) Invts in Assocs & JVs 10,809 11,550 11,947 10,892 Gross Profit 7,622 8,714 9,999 11,184 Other LT Assets 1,793 2,939 3,426 3,231 Other Opg (Exp)/Inc (4,346) (4,643) (5,360) (5,462) Cash & ST Invts 9,584 9,708 10,751 5,501 Operating Profit 3,276 4,071 4,639 5,722 Inventory 792 640 571 413 Other Non Opg (Exp)/Inc (10) 762 838 651 Debtors 2,978 3,955 4,016 4,454 Associates & JV Inc 798 105 120 119 Other Current Assets 4,865 6,156 5,013 9,602 Net Interest (Exp)/Inc (254) (180) (285) (304) Total Assets 50,482 57,752 59,896 59,675 Exceptional Gain/(Loss) - - - - Pre-tax Profit 3,811 4,757 5,311 6,189 ST Debt 875 3,319 4,243 3,163 Ta x (987) (1,408) (1,508) (1,751) Creditors 5,256 4,676 4,692 4,969 Minority Interest (663) (869) (965) (1,148) Other Current Liab 11,825 15,784 16,488 17,284 Preference Dividend - - - - LT De bt 13,261 11,814 10,869 9,216 Net Profit 2,161 2,480 2,838 3,289 Other LT Liabilities 649 1,031 1,117 1,338 Net Profit before Except. 2,161 2,480 2,838 3,289 Shareholder's Equity 14,183 16,063 17,009 17,768 EBITDA 3,887 5,070 5,752 7,082 Minority Interests 4,433 5,065 5,478 5,937 Revenue Gth (%) 63.6 28.8 14.3 0.3 Total Cap. & Liab. 50,482 57,752 59,896 59,675 EBITDA Gth (%) 76.2 30.4 13.4 23 Opg Profit Gth (%) 94.2 24.3 14.0 23.4 Non-Cash Wkg. Cap (8,446) (9,709) (11,581) (7,783) Effective Tax Rate (%) 25.9 29.6 28.4 28.3 Net Cash/(Debt) (4,552) (5,425) (4,361) (6,878)

Cash Flow Statement (HK$m) Rates & Ratio FY Dec 2013A 2014A 2015A 2016A FY Dec 2013A 2014A 2015A 2016A Pre-Tax Profit 3,811 4,757 5,311 6,189 Gross Margin (%) 34.2 30.3 30.5 34.0 Dep. & Amort. 611 1,000 1,114 1,360 Opg Profit Margin (%) 14.7 14.2 14.1 17.4 Net Profit Margin (%) 9.7 8.6 8.6 10.0 Tax Paid (902) (1,213) (1,294) (1,654) ROAE (%) 16.7 16.4 17.2 18.9 Assoc. & JV Inc/(loss) (798) (861) (961) (772) ROA (%) 4.9 4.6 4.8 5.5 (Pft)/ Loss on disposal of FAs 53 89 131 200 ROCE (%) 8.7 9.4 10.1 12.7 Non-Cash Wkg. Cap. 2,720 1,430 1,230 1,941 Div Payout Ratio (%) 16.1 21.9 23.0 25.1 Other Operating CF 388 590 320 394 Interest Cover (x) 12.9 22.6 16.3 18.8 Net Operating CF 5,881 5,793 5,852 7,657 Asset Turnover (x) 0.5 0.5 0.6 0.6 Capital Exp. (net) (4,132) (3,558) (3,823) (3,491) Debtors Turn (days) 39.2 44.1 44.3 47.0 Creditors Turn (days) 91.9 90.6 74.9 81.1 Other Invts. (net) (196) (360) 11,420 33,582 Inventory Turn (days) 16.5 13.1 9.7 8.3 Invts. in Assoc. & JV (3,503) (354) (435) (1) Current Ratio (x) 1.0 0.9 0.8 0.8 Div from Assoc. & JV - - - - Quick Ratio (x) 1.0 0.8 0.8 0.8 Other Investing CF (255) (524) (8,632) (37,854) Net Debt/Equity (X) 0.3 0.3 0.3 0.4 Net Investing CF (8,086) (4,796) (1,470) (7,764) Capex to Debt (%) 29.2 23.5 25.3 28.2 Div Paid (348) (543) (652) (827) N. Cash/(Debt)PS (HK$) (2.05) (2.44) (1.96) (3.09) Chg in Gross Debt - - 3 (2,671) Opg CFPS (HK$) 2.71 2.67 2.69 3.52 Free CFPS (HK$) 0.65 0.78 0.63 1.53 Capital Issues - - - - Other Financing CF (1,338) (404) (535) (1,645) Net Financing CF (1,687) (947) (1,184) (5,143) Chg in Cash (3,891) 50 3,198 (5,250) Interim Income Statement (HK$m) Segmental Breakdown (HK$m) / Key Assumptions FY Dec 2H15 1H16 2H16 1H17 FY Dec 2013A 2014A 2015A 2016A Revenue 17,236 15,413 17,503 17,695 Cost of Goods Sold (11,888) (9,942) (11,790) (11,995) Revenues Gross Profit 5,349 5,471 5,713 5,700 Sales & Distribution of Gas Fuel & Rel 17,164 22,481 20,249 20,765 Other Oper. (Exp)/Inc (3,050) (2,422) (3,035) (2,557) Gas Connection 5,124 6,236 3,978 7,439 Operating Profit 2,299 3,049 2,678 3,143 Other Non Opg (Exp)/Inc 484 -- 509 Gas Stations -- 6,869 3,106 Associates & JV Inc 56 54 Design and Construction Services -- 1,550 1,337 Net Interest (Exp)/Inc (105) -- (153) Sale of Gas Appliances -- 187.83 268.88 Exceptional Gain/(Loss) - - - - Tota l 22,288 28,717 32,834 32,916 Pre-tax Profit 2,678 3,359 2,829 3,553 Ta x (878) (754) (997) (792) Minority Interest (519) (648) (500) (646) Net Profit 1,281 1,957 1,332 2,114 Net profit bef Except. 1,281 1,957 1,332 2,114

Growth Revenue Gth (%) 8.6 (1.2) 1.5 14.8 Opg Profit Gth (%) 11.1 31.2 16.5 3.1 Net Profit Gth (%) 4.2 25.7 4.0 8.0

Margins & Ratio Gross Margins (%) 31.0 35.5 32.6 32.2 Opg Profit Margins (%) 13.3 19.8 15.3 17.8 Net Profit Margins (%) 7.4 12.7 7.6 11.9 Source: Company, DBS Vickers

Page 35

China Gas Utilities Sector Towngas China

Bloomberg: 1083 HK | Reuters: 1083.HK Refer to important disclosures at the end of this report

NOT RATED Cheap valuation Last Traded Price (26 Sep 2017): HK$5.29 (HIS: 27,513) · Solid city gas distributor with sales volume growth higher than industry average

Analyst · Connection fees looking stable Tony WU CFA +852 2971 1708 [email protected] · Extension into distributed energy projects for growth Patricia YEUNG +852 2863 8908 · Attractive valuation and potential privatisation candidate [email protected]

Solid city gas business. Towngas China is a gas distributor with Price Relative 97 city-gas projects as at the end of 1H17. Amid acceleration of HK$ Relative Index coal-to-gas conversions, the company will focus on tackling 12.0 250 Commercial & Industrial (C&I) coal-to-gas conversions and 10.0 200 space heater installations. The company achieved higher than 8.0 150 average gas sales volume growth of 18% during 1H17, and it is 6.0 4.0 100 expected to achieve volume growth of 15-18% p.a. in FY17 2.0 50 and FY18. The number of new household connections is 0.0 0 expected to go up slightly to 420k in FY17 and average 12 13 15 16 12 14 17 16 ------connection fees should be fairly stable in FY17. Jul Jul Jan Oct Sep Apr Dec Mar Towngas China (LHS) Distributed energy projects. The company established Towngas Relative HSI (RHS) China Energy Investment (Shenzhen) to invest in natural gas distributed energy projects to open an additional source of Forecasts and Valuation revenue, and to explore other business opportunities. The FY Dec (HK$m) 2013A 2014A 2015A 2016A distributed energy projects mainly use natural gas as fuel to Turnover 6,716 7,882 7,718 7,181 EBITDA 1,268 1,481 1,484 1,523 provide power, heating and cooling to industrial parks and Pre-tax Profit 1,609 1,531 1,268 1,455 commercial buildings. It is targeting for 1.7bn m3 of gas Net Profit 1,106 1,054 807 974 volume in five years. Net Pft (Pre Ex.) 1,106 1,054 807 974 EPS (HK$) 0.42 0.40 0.30 0.36 A privatisation target. Towngas China is trading at an attractive EPS Gth (%) 24.3 (5.3) (24.2) 19.1 Diluted EPS (HK$) 0.42 0.40 0.30 0.36 11.2x FY18PE, which is at 55% discount to its parent, Hong DPS (HK$) 0.08 0.10 0.10 0.12 Kong and China Gas (HKCG), potentially making it a target for BV Per Share (HK$) 4.80 5.03 5.06 4.98 privatisation. We see more action from HKCG as it has been PE (X) 12.5 13.2 17.4 14.6 P/Cash Flow (X) 9.0 8.5 7.7 6.5 increasing its stake frequently this year. HKCG’s stake has P/Free CF (x) n.m. n.m. n.m. 108.3 increased to 66% currently from 62% in 2016. EV/EBITDA (X) 15.0 14.1 14.6 14.2 Net Div Yield (%) 1.5 1.9 1.9 2.3 At A Glance P/Book Value (X) 1.1 1.1 1.0 1.1 Issued Capital - H shares (m shs) 2,769 Net Debt/Equity (X) 0.3 0.4 0.5 0.5 Total Mkt Cap (HK$m/US$m) 14,536 / 1,861 ROAE (%) 9.6 8.2 6.0 7.2 Major Shareholders (%) Henderson Development Limited 66.00 ICB Industry: Utilities Commonwealth Bank of Australia 7.97 ICB Sector: Gas, Water & Multiutilities Towngas Investment Company Limited 5.02 Principal Business: Investment, construction, and operation of city gas Planwise Properties Limited 5.01 projects Free Float (%) 16.00 Source of all data on this page: Company, DBSV, Thomson Reuters, 3m Avg. Daily Val. (US$m) 2.0 HKEX

DBSV's discussion of the issuer in this report will not be continuously followed. Accordingly, this report is being provided as a stand-alone analysis and recipients of this report should not expect additional reports relating to this issuer, unless so decided by DBSV. ed- JS/ sa- AH China Gas Utilities Sector Towngas China

Income Statement (HK$m) Balance Sheet (HK$m) FY Dec 2013A 2014A 2015A 2016A FY Dec 2013A 2014A 2015A 2016A Revenue 6,716 7,882 7,718 7,181 Net Fixed Assets 9,708 11,476 12,557 13,243 Cost of Goods Sold ---- Invts in Assocs & JVs 4,597 4,773 5,012 5,056 Gross Profit ---- Other LT Assets 6,277 6,726 6,645 6,187 Other Opg (Exp)/Inc ---- Cash & ST Invts 2,605 1,797 2,376 1,579 Operating Profit 925 1,066 1,018 1,023 Inventory 588 566 558 493 Other Non Opg (Exp)/Inc 457 245 132 313 Debtors 644 743 735 654 Associates & JV Inc 336 347 266 340 Other Current Assets 1,210 1,270 988 817 Net Interest (Exp)/Inc (109) (127) (148) (221) Total Assets 25,629 27,350 28,871 28,027 Exceptional Gain/(Loss) - - - - Pre-tax Profit 1,609 1,531 1,268 1,455 ST Debt 2,419 2,483 3,183 2,653 Ta x (383) (350) (344) (362) Creditors 870 1,028 942 1,045 Minority Interest (120) (127) (117) (119) Other Current Liab 4,094 3,878 4,023 4,072 Preference Dividend - - - - LT De bt 4,482 5,069 5,585 5,184 Net Profit 1,106 1,054 807 974 Other LT Liabilities 286 448 437 409 Net Profit before Except. 1,106 1,054 807 974 Shareholder's Equity 12,531 13,254 13,478 13,499 EBITDA 1,268 1,481 1,484 1,523 Minority Interests 947 1,191 1,222 1,165 Revenue Gth (%) 29.6 17.4 (2.1) (7.0) Total Cap. & Liab. 25,629 27,350 28,871 28,027 EBITDA Gth (%) 23.2 16.8 0.2 3 Opg Profit Gth (%) 24.4 15.2 (4.5) 0.5 Non-Cash Wkg. Cap (2,522) (2,327) (2,684) (3,154) Effective Tax Rate (%) 23.8 22.9 27.1 24.9 Net Cash/(Debt) (4,296) (5,755) (6,392) (6,258)

Cash Flow Statement (HK$m) Rates & Ratio FY Dec 2013A 2014A 2015A 2016A FY Dec 2013A 2014A 2015A 2016A Pre-Tax Profit 1,609 1,531 1,268 1,455 Gross Margin (%) n.a. n.a. n.a. n.a. Dep. & Amort. 343 415 466 499 Opg Profit Margin (%) 13.8 13.5 13.2 14.2 Tax Paid (234) (277) (242) (294) Net Profit Margin (%) 16.5 13.4 10.5 13.6 Assoc. & JV Inc/(loss) (601) (625) (593) (618) ROAE (%) 9.6 8.2 6.0 7.2 (Pft)/ Loss on disposal of FAs 14 27 15 63 ROA (%) 4.7 4.0 2.9 3.4 Non-Cash Wkg. Cap. 117 190 327 656 ROCE (%) 3.9 4.0 3.4 3.5 Other Operating CF 284 367 576 412 Div Payout Ratio (%) 14.2 5.1 12.1 6.5 Net Operating CF 1,532 1,629 1,818 2,174 Interest Cover (x) 8.4 8.4 6.9 4.6 Capital Exp. (net) (1,724) (2,064) (2,035) (1,979) Asset Turnover (x) 0.3 0.3 0.3 0.3 Other Invts. (net) (1,666) (923) (121) 49 Debtors Turn (days) 28.7 32.1 34.9 35.3 Invts. in Assoc. & JV (5) (19) (127) (156) Creditors Turn (days) n.a. n.a. n.a. n.a. Div from Assoc. & JV - - - - Other Investing CF (71) 40 113 (16) Inventory Turn (days) n.a. n.a. n.a. n.a. Net Investing CF (3,465) (2,966) (2,171) (2,103) Current Ratio (x) 0.7 0.6 0.6 0.5 Div Paid (157) (54) (97) (63) Quick Ratio (x) 0.6 0.5 0.5 0.4 Chg in Gross Debt 788 681 1,261 (608) Net Debt/Equity (X) 0.3 0.4 0.5 0.5 Capital Issues 940 10 41 - Capex to Debt (%) 25.0 27.3 23.2 25.3 Other Financing CF 112 (79) (164) (188) N. Cash/(Debt)PS (HK$) (1.64) (2.19) (2.40) (2.31) Net Financing CF 1,684 558 1,040 (858) Opg CFPS (HK$) 0.59 0.62 0.69 0.81 Chg in Cash (249) (779) 687 (787) Free CFPS (HK$) (0.13) (0.19) (0.12) 0.05 Interim Income Statement (HK$m) Segmental Breakdown (HK$m) / Key Assumptions FY Dec 2H15 1H16 2H16 1H17 FY Dec 2013A 2014A 2015A 2016A Revenue 3,787 3,436 3,745 4,036 Revenues Cost of Goods Sold ---- Sale & Distribution of Gas Fuel & Rela 5,265 6,205 6,011 5,518 Gross Profit ---- Gas Pipeline Construction 1,451 1,677 1,708 1,663 Other Oper. (Exp)/Inc ---- Operating Profit 496 589 434 500 Tota l 6,716 7,882 7,718 7,181 Other Non Opg (Exp)/Inc (11) 110 367 297 Associates & JV Inc 176 183 Net Interest (Exp)/Inc (89) (94) (127) (108) Exceptional Gain/(Loss) - - - - Pre-tax Profit 396 781 674 871 Ta x (165) (165) (197) (198) Minority Interest (63) (52) (67) (71) Net Profit 168 564 410 602 Net profit bef Except. 168 564 410 602

Growth Revenue Gth (%) (10.0) (12.6) (1.1) 17.5 Opg Profit Gth (%) (13.0) 12.9 (12.5) (15.2) Net Profit Gth (%) (71.4) (11.7) 144.0 6.7

Margins & Ratio Gross Margins (%) ---- Opg Profit Margins (%) 13.1 17.1 11.6 12.4 Net Profit Margins (%) 4.4 16.4 10.9 14.9 Source: Company, DBS Vickers

Page 37 Industry Focus China Gas Utilities Sector

Appendix China natural gas consumption mix A lucrative industry with bright prospects Construction Wholesale, 0% Transport, Retail and Natural gas is strongly supported by the Chinese government Storage & Catering Na as a type of fossil fuel that burns cleaner than oil or coal. The Telecom 3% 12% government is currently reducing coal consumption and increasing clean energy consumption in an attempt to improve Residential the environment. China targets to increase the energy 19% consumption proportion for natural gas from 5.9% in 2015 to 10% in 2020, and 15% in 2030. In 2016, natural gas 3 consumption has increased 6.7% to 205.8bn m , and Other accounted for 6.2% of the energy consumption in China. In Industrial Consumption 64% 2% order to reach the government’s target, we expect the natural gas consumption to reach above 330bn m3 by 2020, representing a CAGR of 13%.

China natural gas consumption Source: CEIC

m m3 Average operating heat rate 35,000 50% 30,000 40% Btu/ kwh 25,000 30% 12,000 20% 20,000 10% 11,000 15,000 0% 10,000 10,000 - 10% 9,000 5,000 - 20% 8,000 0 - 30% 7,000 Jun-15 Jun-17 Jun-16 Oct-11 Oct-12 Oct-13 Oct-14 Oct-15 Oct-16 Feb- 16 Feb- 17 Feb- 15 Apr-12 Apr-13 Mar-14 6,000 Mid Price (m m3) (LHS) y-o-y % (RHS) 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Source: CEIC Coal Petroleum Natural Gas

Source: EIA The natural gas consumption volume is highly dependent on industrial users, in turn which is correlated to underlying economic growth and the implementation of coal-to-gas Natural gas enjoys higher efficiency and lower carbon dioxide conversion activities. Approximately 64% and 19% of the (CO2)/ nitrogen oxide (NO) / sulfur dioxide (SO2) emission natural gas is consumed by industrial and residential users compared to some of the traditional fossil fuels. Natural gas respectively. For residential gas usage, it is mainly driven by the emits 50%/ 80%/99% less CO2/ NO/SO2 than coal, and increasing penetration into existing residential buildings and 30%/80%/99% less than oil. Natural gas power plants construction of new residential buildings. operate at c.25% lower heat rate (more efficient) than coal and petroleum powered plants Thanks to the improved economic growth in China, the natural gas consumption growth rebounded in 1H17 reaching 15.2%. Current city-gate pricing mechanism saids... The pricing We expect gas sales growth to continue as the government mechanism for natural gas has seen several changes over the tightens natural gas policy enforcements in order to reach the past years and it is heading towards the direction of market natural gas consumption target. oriented pricing. Prior to 1993, the ex-factory gas price was set by the government. Since then, natural gas price has gradually adopted government-guided pricing, which implies greater

Page 38 Industry Focus China Gas Utilities Sector

price flexibility. At the current stage, the “market netback” set by the NDRC, and the price is pegged to the alternative pricing method is adopted, where a maximum city gate price is energy price.

Natural gas price setting policies

Date Policy Policy details Before Cost plus pricing method (Natural gas price set by 2011 gov ernment and facilitated by market. Price is determined at reasonable margin on top of production cost. ) Dec-11 Market net back pricing method. Link city gate market Trial in Guangdong and Guangxi price with alternativ e fuels J ul-13 Market net back pricing method. Separate existing gas Seeks to adjust price of incremental gas to a fair lev el v olume and incremental gas v olume. Link incremental gas comparable to alternativ e energy ’s price. For non-residential price with alternativ e fuels. use, price will increase RMB 0.4/m³. Price for gas used to produce fertilizers will merge and increase by RMB 0.25/m³. Price for residential users will remain unchanged. Sep-14 Market net back pricing method. Narrow price down Price for incremental gas remains unchanged. Non-residential differences between existing and incremental gas. users' existing gas price increase RMB 0.4/ m³. Price for gas used to produce fertilizers and residential users remain unchanged. Apr-15 Market net back pricing method. Merge existing and Non-residential users incremental gas decrease by RMB 0.44/ incremental gas. m³. Existing gas increase RMB 0.04/ m³. Price for gas used to produce fertilizers increase by less than RMB 0.2/ m³ to a suitable lev el. Price for residential users will remain unchanged. Nov -15 Market net back pricing method. Price for non-residential users decrease RMB 0.7/ m³. No price floor is set while the ceiling price can increase by 20% starting from 20 Nov 2016 Aug-17 Market net back pricing method. Price for non-residential users decrease RMB 0.1/ m³ Source: NDRC, DBS Vickers

There is additional downside to the city-gate price even if we Alternative fuel price and natural gas price exclude potential transmission and distribution tariff cut factor. Firstly, based on the market net back pricing method, the city Rmb/mmbt u gate price falls into the range of Rmb1.6-1.8/m3, which is 140 below the Shanghai standard price of Rmb2.08/m3. Secondly, if we examine at the competitiveness of natural gas price to 120 alternative fuel, there is more downside to the current level if 100 the balance spread is restored to the 2014 level before the oil 80 price crash. 60 40 20 0 Jun-14 Jun-17 LPG Fuel Oil Crude Oil Steam Coal Shanghai city-gate price Source: DBS Vickers

Page 39 Industry Focus China Gas Utilities Sector

DBSVHK recommendations are based an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return i.e. > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)

Share price appreciation + dividends

Completed Date: 29 Sep 2017 11:26:19 (HKT) Dissemination Date: 29 Sep 2017 15:58:30 (HKT)

Sources for all charts and tables are DBS Vickers unless otherwise specified.

GENERAL DISCLOSURE/DISCLAIMER

This report is prepared by DBS Vickers (Hong Kong) Limited (“DBSV HK”). This report is solely intended for the clients of DBS Bank Ltd., DBS Bank (Hong Kong) Limited (DBS HK), DBSV HK, and DBS Vickers Securities (Singapore) Pte Ltd. (“DBSVS”), its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBSV HK.

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DBSVUSA, a US-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage in market-making.

Page 40 Industry Focus China Gas Utilities Sector

ANALYST CERTIFICATION The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her compensation was, is, or will be, directly or indirectly, related to specific recommendations or views expressed in the report. The research analyst (s) primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate 1 does not serve as an officer of the issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of the real estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty of the entity who is responsible for the management of the issuer or the new listing applicant) and the research analyst(s) primarily responsible for the content of this research report or his associate does not have financial interests 2 in relation to an issuer or a new listing applicant that the analyst reviews. DBS Group has procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of research reports. The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment banking function of the DBS Group and procedures are in place to ensure that confidential information held by either the research or investment banking function is handled appropriately. There is no direct link of DBS Group's compensation to any specific investment banking function of the DBS Group.

COMPANY-SPECIFIC / REGULATORY DISCLOSURES 1. DBS Bank Ltd, DBS HK, DBSVS, DBSV HK or their subsidiaries and/or other affiliates have a proprietary position in China Resources Gas Group Limited (1193 HK) recommended in this report as of 27 Sep 2017.

2. Neither DBS Bank Ltd, DBS HK nor DBSV HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research Report.

3. Compensation for investment banking services: DBS Bank Ltd, DBS HK, DBSVS, DBSV HK, their subsidiaries and/or other affiliates of DBSVUSA have received compensation, within the past 12 months for investment banking services from Beijing Enterprises Holdings Limited (392 HK) as of 31 Aug 2017.

4. DBS Bank Ltd, DBS HK, DBSVS, DBSV HK, their subsidiaries and/or other affiliates of DBSVUSA have managed or co-managed a public offering of securities for Beijing Enterprises Holdings Limited (392 HK) in the past 12 months, as of 31 Aug 2017.

DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively.

5. Disclosure of previous investment recommendation produced: DBS Bank Ltd, DBSVS, DBSVHK, their subsidiaries and/or other affiliates of DBSVUSA may have published other investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12 months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published by DBS Bank Ltd, DBSVHK, their subsidiaries and/or other affiliates of DBSVUSA in the preceding 12 months.

1 An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person accustomed or obliged to act in accordance with the directions or instructions of the analyst. 2 Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an issuer or a new listing applicant, or financial accommodation arrangement between the issuer or the new listing applicant and the firm or analysis. This term does not include commercial lending conducted at arm's length, or investments in any collective investment scheme other than an issuer or new listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant.

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RESTRICTIONS ON DISTRIBUTION General This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. Australia This report is being distributed in Australia by DBS Bank Ltd. (“DBS”) or DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”). DBS holds Australian Financial Services Licence no. 475946. DBSVS is exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act 2001 (“CA”) in respect of financial services provided to the recipients. Both DBS and DBSVS are regulated by the Monetary Authority of Singapore under the laws of Singapore, and DBSVHK is regulated by the Securities and Futures Commission of Hong Kong under the laws of Hong Kong, which differ from Australian laws. Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.

Hong Kong This report is being distributed in Hong Kong by DBS Bank Ltd, DBS Bank (Hong Kong) Limited and DBS Vickers (Hong Kong) Limited, all of which are registered with or licensed by the Hong Kong Securities and Futures Commission to carry out the regulated activity of advising on securities. Indonesia This report is being distributed in Indonesia by PT DBS Vickers Sekuritas Indonesia. Malaysia This report is distributed in Malaysia by AllianceDBS Research Sdn Bhd ("ADBSR"). Recipients of this report, received from ADBSR are to contact the undersigned at 603-2604 3333 in respect of any matters arising from or in connection with this report. In addition to the General Disclosure/Disclaimer found at the preceding page, recipients of this report are advised that ADBSR (the preparer of this report), its holding company Alliance Investment Bank Berhad, their respective connected and associated corporations, affiliates, their directors, officers, employees, agents and parties related or associated with any of them may have positions in, and may effect transactions in the securities mentioned herein and may also perform or seek to perform broking, investment banking/corporate advisory and other services for the subject companies. They may also have received compensation and/or seek to obtain compensation for broking, investment banking/corporate advisory and other services from the subject companies.

Wong Ming Tek, Executive Director, ADBSR Singapore This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn No. 198600294G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 6327 2288 for matters arising from, or in connection with the report. Thailand This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd. Research reports distributed are only intended for institutional clients only and no other person may act upon it. United This report is produced by DBSVHK which is regulated by the Hong Kong Securities and Futures Commission Kingdom This report is disseminated in the United Kingdom by DBS Vickers Securities (UK) Ltd (“DBSVUK”). DBSVUK is authorised and regulated by the Financial Conduct Authority in the United Kingdom. In respect of the United Kingdom, this report is solely intended for the clients of DBSVUK, its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBSVUK. This communication is directed at persons having professional experience in matters relating to investments. Any investment activity following from this communication will only be engaged in with such persons. Persons who do not have professional experience in matters relating to investments should not rely on this communication. Dubai This research report is being distributed by DBS Bank Ltd., (DIFC Branch) having its office at PO Box 506538, 3rd Floor, International Building 3, East Wing, Gate Precinct, Dubai International Financial Centre (DIFC), Dubai, United Arab Emirates. DBS Bank Financial Ltd., (DIFC Branch) is regulated by The Dubai Financial Services Authority. This research report is intended only for Centre professional clients (as defined in the DFSA rulebook) and no other person may act upon it. United Arab This report is provided by DBS Bank Ltd (Company Regn. No. 196800306E) which is an Exempt Financial Adviser as defined Emirates in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. This report is for information purposes only and should not be relied upon or acted on by the recipient or considered as a solicitation or inducement to buy or sell any financial product. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situation, or needs of individual clients. You should contact your relationship manager or investment adviser if you need advice on the merits of buying, selling or holding a particular investment. You should note that the information in this report may be out of date and it is not represented or warranted to be accurate, timely or complete. This report or any portion thereof may not be reprinted, sold or redistributed without our written consent.

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United States This report was prepared by DBSVHK. DBSVUSA did not participate in its preparation. The research analyst(s) named on this report are not registered as research analysts with FINRA and are not associated persons of DBSVUSA. The research analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation, communications with a subject company, public appearances and trading securities held by a research analyst. This report is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. This report may only be distributed to Major U.S. Institutional Investors (as defined in SEC Rule 15a-6) and to such other institutional investors and qualified persons as DBSVUSA may authorize. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBSVUSA directly and not its affiliate. Other In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, jurisdictions professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions. DBS Vickers (Hong Kong) Limited 18th Floor Man Yee building, 68 Des Voeux Road Central, Central, Hong Kong Tel: (852) 2820-4888, Fax: (852) 2868-1523 Company Regn. No. 31758

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DBS Regional Research Offices

HONG KONG MALAYSIA SINGAPORE DBS Vickers (Hong Kong) Ltd AllianceDBS Research Sdn Bhd DBS Bank Ltd Contact: Carol Wu Contact: Wong Ming Tek (128540 U) Contact: Janice Chua 18th Floor Man Yee Building 19th Floor, Menara Multi-Purpose, 12 Marina Boulevard, 68 Des Voeux Road Central Capital Square, Marina Bay Financial Centre Tower 3 Central, Hong Kong 8 Jalan Munshi Abdullah 50100 Singapore 018982 Tel: 852 2820 4888 Kuala Lumpur, Malaysia. Tel: 65 6878 8888 Fax: 852 2863 1523 Tel.: 603 2604 3333 Fax: 65 65353 418 e-mail: [email protected] Fax: 603 2604 3921 e-mail: [email protected] Participant of the Stock Exchange of Hong Kong Ltd e-mail: [email protected] Company Regn. No. 196800306E

INDONESIA THAILAND PT DBS Vickers Sekuritas (Indonesia) DBS Vickers Securities (Thailand) Co Ltd Contact: Maynard Priajaya Arif Contact: Chanpen Sirithanarattanakul DBS Bank Tower 989 Siam Piwat Tower Building, Ciputra World 1, 32/F 9th, 14th-15th Floor Jl. Prof. Dr. Satrio Kav. 3-5 Rama 1 Road, Pathumwan, Jakarta 12940, Indonesia Bangkok Thailand 10330 Tel: 62 21 3003 4900 Tel. 66 2 657 7831 Fax: 6221 3003 4943 Fax: 66 2 658 1269 e-mail: [email protected] e-mail: [email protected] Company Regn. No 0105539127012 Securities and Exchange Commission, Thailand

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