EUR 850.00 For Business Accounts Only

Morningstar | China Resources Gas Is Well Placed to Benefit From China’s Supportive Natural Gas Policies

China Resources Gas Group is a state-owned gas utilities group in China engaging in downstream city gas distribution. We expect CRG to generate returns above its cost of capital over the next decade, supporting our narrow moat rating.China’s goal to increase gas usage to 10% of the country’s energy sources from 6% currently will continue to encourage long-term demand growth, in our view. We project CRG’s natural gas sales volume to grow at a 16.1% CAGR during 2017-22.In addition, the establishment of the Shanghai Petroleum and Natural Gas Exchange and the gradual opening of gas pipelines to third-party access in the long run should lead to a market-oriented reform of natural gas pricing and promote healthy growth for city gas operators. As the largest city gas operator in China by gas sales volume, CRG can leverage its leading position to source for cheaper gas, in our opinion. Currently, the company is taking advantage of the oversupply of liquefied natural gas, which is more competitively priced than piped gas in provinces such as Guangdong and Fujian. Furthermore, the firm has the highest proportion of residential customers in the industry and should benefit the most from the gradual implementation of a gas tier-pricing system for residential users in China.CRG is planning to venture into other utility-related business to diversify its earnings. The firm has started an electric charging business in Hangzhou with the intention to expand into other provinces such as Fujian, Shandong, and Henan. CRG is also studying the electricity retailing model, but so far there has been nothing concrete. We think the firm may be able to gain synergy in this business by partnering with its sister company, China Resources Power. Nevertheless, we do not expect meaningful contributions from these new ventures in the near term, given their relatively small scale.