China Gas Holdings FY26 core earnings in line with expectations, dividend below expectations but worst may be over

Overview

This report reviews China Gas Holdings' FY26 results from Deutsche Bank's perspective. The company's FY26 core earnings were HK$2.86bn, down 16% year on year, broadly in line with Deutsche Bank's expectations and slightly above recent investor expectations. Dividends were slightly below expectations, with full-year DPS at HK$0.35 and the payout ratio declining to 70%. However, management believes the current dividend level is likely near a trough and could improve alongside future earnings recovery.

Core views

Deutsche Bank maintained its Buy rating, with the core view that the company may have passed its most difficult phase. FY26 operating performance remained under pressure, including declines in revenue, net profit, connections and value-added services profit, but retail gas profit still grew year on year, the unit gas spread was slightly better than guidance, and cash flow remained solid. Future FY27 growth will mainly depend on the recovery of city gas sales volume, gas spread pass-through, progress in new businesses such as biomass and integrated energy, and whether management's equity incentives can drive core earnings growth.

Analysis framework

The report combines earnings analysis, operating metric tracking, updates to management guidance and DCF valuation. Key areas of analysis include core earnings, DPS and payout ratio, city gas sales volume, unit gas spread, new connections, free cash flow, segment profits, and FY27 capital expenditure and new business plans.

Methodology notes

• Valuation methodsDCF

  Discounted cash flow valuation

  Deutsche Bank used the DCF method to derive the 12-month target price, with key assumptions including a 7% WACC, 9% cost of equity, 3% after-tax cost of debt and a 0.5% perpetual growth rate.

• earnings_reviewResults bridge

  Earnings bridge

  The report decomposes FY26 results into revenue, gross profit, other income, expenses, financing costs, net profit, core earnings and segment profit, and compares them with FY25 and management guidance.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• China Gas Holdings Ltd. 00384.HK

  Primary research subject; Deutsche Bank maintained its Buy rating

  Strengths

  Core earnings in line with expectations, solid cash flow, growth in retail gas profit, greater alignment between management incentives and earnings growth targets, and biomass projects potentially becoming future growth drivers.

  Weaknesses

  FY26 revenue and net profit declined, full-year DPS was below expectations, new connections decreased, commercial and vehicle gas demand was weak, and value-added services profit declined.

  Comparison

  FY26 dividend yield was approximately 6.2%, which the report described as broadly in line with gas industry peers; the valuation section includes a comparison with city gas distributors.

  Risks

  Nationwide gas demand weaker than expected, adverse procurement costs putting pressure on sales volume and unit margins, and new business development slower than expected.

• CGHLY ADR

  ADR identifier for China Gas Holdings

  Strengths

  Related to the primary listed equity and provides an identification reference for overseas investors.

  Weaknesses

  The report did not separately analyze ADR liquidity, valuation or trading risks.

  Comparison

  No independent comparison data.

  Risks

  ADR investors also need to consider foreign exchange and cross-market trading risks.

Key data

• FY26 core earningsHK$2.86bn, down 16.3% year on yearBroadly in line with Deutsche Bank's HK$2.8bn forecast and slightly above recent investor expectations of HK$2.5-2.6bn.
• FY26 full-year DPSHK$0.35Below Deutsche Bank's HK$0.42 forecast, with the payout ratio declining from 83% to 70%.
• Current share price and target priceHK$5.65 / HK$9.00The current price was as of June 26, 2026; the target price was lowered from HK$10.0 to HK$9.0.
• FY26 revenueHK$73.604bn, down 7.1% year on yearThe main financial statements show that revenue declined from HK$79.258bn in FY25.
• FY26 net profitHK$2.719bn, down 16.4% year on yearNet profit attributable to shareholders declined, affected by lower other income and business pressure.
• FY26 retail city gas sales volumedown 0.2% year on yearResidential and industrial volumes increased 0.9% and 1.0% year on year, respectively, while commercial and vehicle gas volumes declined 4.5% and 20.4%, respectively.
• FY26 unit gas spreadRmb0.55 per cubic meterIncreased from Rmb0.54 per cubic meter in FY25, slightly better than management's guidance for a year-on-year increase of Rmb0.01 per cubic meter.
• FY26 operating cash flowHK$7.02bn, up 9% year on yearThe company's free cash flow was HK$4.84bn, and the report considered cash flow performance solid.
• FY27 city gas sales volume guidance0-2% year-on-year growthSales volume declined 0.7-0.8% year on year in April-May 2026, mainly due to weak industrial demand.
• FY27 capital expenditure guidanceHK$4.0bnOf this, HK$2.0-2.5bn is allocated to city gas, while HK$1.5bn is allocated to new businesses, including HK$1.0bn for integrated energy and HK$0.5bn for biomass.

Impact & implications

The report's investment implications for the stock are moderately positive: although near-term earnings and dividends are under pressure and the target price was reduced due to downward earnings forecast revisions, the current share price still offers substantial upside relative to the target price, with support from dividend yield. If the gas spread recovers after tariff pass-through, value-added services profit returns to growth, and biomass projects deliver, the company's core earnings recovery path could strengthen.

Risks

• Nationwide gas demand weaker than expected.
• Adverse gas procurement costs could weigh on city gas sales volume and unit margins.
• New business development slower than expected could affect the target of doubling core earnings from FY26 to FY31.
• Weak industrial demand could continue to weigh on city gas sales volume in the early part of FY27.
• Dividend recovery depends on earnings recovery; if earnings recovery is slower than management expects, improvement in payout may be delayed.

What to watch

• Whether FY27 city gas sales volume can achieve management's guidance of 0-2% year-on-year growth.
• Whether tariff pass-through can drive a recovery in the unit gas spread in the coming months after the decline in April-May 2026.
• Whether new residential gas connections in FY27 can reach the target of 0.9-1.0mn households.
• Whether value-added services gross profit or operating profit can achieve growth of more than 10%.
• Whether the contracted biomass capacity of 9.66mn tonnes of steam per year can translate into actual earnings contribution.
• Whether the 15% year-on-year core earnings growth requirement under management's equity incentives or the five-year doubling target can be gradually achieved.