Report
Jennifer Song
EUR 850.00 For Business Accounts Only

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.
Underlying
Beijing Enterprises Holdings (Red Chip)

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.

Provider
Morningstar
Morningstar

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.

Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.

We have operations in 27 countries.

Analysts
Jennifer Song

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