Morningstar | BEH Is Riding on China's Antipollution Drive
Founded in 1997, Beijing Enterprises Holdings, or BEH, is the listed flagship of the Beijing municipal government, with a strategic focus on public utilities. It has a monopoly position in Beijing’s natural gas distribution, owns unparalleled gas transmission and distribution networks in Beijing, and controls 40% of the Shaanxi-Beijing pipelines, the major source of natural gas supply for Beijing and northern China. It has a unique customer mix, with gas-fired power and heating plants the most prominent demand segments, allowing the company to benefit from a favorable policy environment. The government’s push to fight air pollution sees gas-fired power and heating plants replacing coal-fired power and heating systems in the city, which should drive sustainable and robust gas demand. We think BEH's key strength is its high-quality, well-located gas network with monopoly operation, providing the company with sustainable and robust cash inflows. This underpins our narrow economic moat rating. China’s reliance on cheap and plentiful coal to fuel its economic growth has had clear environmental consequences, and Beijing provides the most prominent example of the particulate-laden air. Serious air pollution has led to the State Council urging reductions in coal use, and by the end of 2016, the Beijing municipal government has converted all of its coal-fired power and heating plants to gas. This should drive sustainable and robust natural gas consumption in Beijing, thereby benefiting BEH. In addition, the company is also actively expanding its reach outside Beijing to capture the strong growth in natural gas consumption in China. BEH also invests in sewage and water treatment, and has interests in waste-to-energy projects. It also owns 80% stake in Yanjing beer, which we think does not fit into the company's utility-heavy business portfolio and creates little synergy.Beijing Enterprises is an investment holding company. Co.'s segments include: piped gas operation, which is engaged in, among others, the distribution and sale of piped natural gas, and the provision of repairs and maintenance services; brewery operation, which is engaged in, among others, the production, distribution and sells of brewery products; sewage and water treatment operations, which is engaged in, among others, the construction of sewage and water treatment plants and other infrastructural facilities; corporate and others, which is comprised of, among others, the construction of waste treatment plants, the construction of broadband infrastructure, and property investment.
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