M UpdateChina Resources Gas Group Ltd | Asia PacificTakeaways from Chongqing Reverse Roadshow We visited Chongqing Gas, CR Gas' associate company and two of the distributed energy projects in the city (one for BOE Technology and one for a local hospital) before Christmas. Management also shared recent gas industry developments. Recent volume/DM development: Gas volume for Jan-Nov grew 7.8% YoY, residential grew 11%, industrial grew 7% while commercial was up 8.7% YoY. As for dollar margin (DM), Jan-Nov was Rmb0.52-0.53/cbm, down from Rmb0.54-0.55/cbm for Jan-Oct, implying a quick retreat in November DM due to winter heating. Excluding M&A contribution, residential and commercial gas volume growth is in-line with the company's expectations, while industrial is a miss due to the weak macro environment. The company is confident of achieving the full year DM target of Rmb0.5/cbm and the new connection target of 3-3.5 mn households.Gas cost and pass through: For this year's winter, average gas cost from PetroChina's contracted gas had a 5-10% YoY increase, while gas from CNOOC and Sinopec declined YoY. However, overall procurement cost declined considering the much lower out-of-contract volumes. This year, the budgeted out-of-contract volume is 300-400 mn cbm compared with more than 1bcm last year, however, the actual volume depends on the weather conditions. So far, residential gas pass through has exceeded 60%.Competition with upstream direct selling: CR Gas exited the power plant business in 2019 due to the low profitability; within their current customer base, they undertook a survey and found there are seldom customers who have the willingness to purchase directly from upstream.Key facts on distributed energy projects: The projects we visited are both based on gas fired power generators and lithium bromide absorption chillers to provide electricity, heat and cold to its customers. Project IRR ranges from 8-10%. More takeaways on following pages:Morgan Stanley Asia Limited+Albert LiEquity Analyst Albert.Li@morganstanley.com +852 3963-3610 Eva HouEquity Analyst Eva.Hou@morganstanley.com +852 2848-6964 Jenny YuResearch Associate Jenny.Yu1@morganstanley.com +852 3963-1925 Morgan Stanley appreciates your support in the 2024 Institutional Investor All-Asia Research Team Survey. Voting will open early January 2024. China Resources Gas Group Ltd (1193.HK, 1193 HK)China Utilities | ChinaStock RatingOverweightIndustry ViewAttractivePrice targetHK$27.00Up/downside to price target (%)10Shr price, close (Dec 22, 2023)HK$24.6052-Week RangeHK$36.15-20.40Sh out, dil, curr (mn)2,232Mkt cap, curr (mn)HK$54,915EV, curr (mn)HK$67,277Avg daily trading value (mn)HK$94Fiscal Year Ending12/22 12/23e 12/24e 12/25eModelWare EPS (HK$)2.062.262.392.59EPS (HK$)§2.732.512.682.83Revenue, net (HK$ mn)94,33898,808 103,572 116,640EBITDA (HK$ mn)11,92412,49812,67713,729ModelWare net inc (HK$ mn)4,7635,2195,5305,992...
