Note that China energy companies are fast growing (if not the fastest growing) and quickly catching up with their western counterpart. If you wish you are a shareholder of Shell or Exxon Mobil in its early day...then perhaps China energy stock is something which you would like to take a look at before it become too expensive.
ML
Top recommendations· BUY CNPC HK (135 HK), PetroChina’s (857 HK; not rated) subsidiary, in a position to benefit from explosive growth in gas.
· BUY China Oil & Gas (603 HK) to gain exposure to coal-bed methane (CBM) in China.
What’s new?
· We initiate coverage of the China gas sector.
· We expect unconventional gas sources such as coal-bed methane and shale gas to significantly boost gas reserves in China.
Industry outlook
· We expect China’s natural gas consumption in 2020 to be six times that of 2008.
· We believe the soon-to-be-announced China gas reform will boost sector growth.
Initiating coverage: We initiate coverage of the China gas sector with BUY recommendations on CNPC (HK) and China Oil & Gas, and a HOLD call on China Resources Gas (1193 HK).
Gas to help ease China’s reliance on oil: Given that China is short of oil, we believe the country will increase natural gas production aggressively to reduce its reliance on oil. On top of its known natural gas reserves, China has made significant progress in unconventional gas development, in particular coal-bed methane (CBM). The National Development and Reform Commission (NDRC) estimates that economically recoverable CBM reserves in China totals 10 tcm (trillion cubic meters, or 353 trillion cubic feet), which is more than four times the proven natural gas reserves in China as of 2008. As China is the world’s largest coal producer, we believe it will naturally be a leading, if not the largest, CBM producer.
Natural gas is a cheaper and cleaner alternative: CNPC, CNOOC (883 HK; not rated), Sinopec (386 HK; not rated) and city gas distribution companies have been investing heavily in gas pipeline infrastructure. Natural gas is replacing liquefied petroleum gas (LPG) and coal gas in homes and buildings for heating and cooking, it is used in industries as a fuel gas and may also increasingly replace gasoline in cars. It is a perfect substitute for LPG or gasoline as it is cheaper and cleaner.
Stock recommendations: Our top pick in the sector is CNPC (HK). We believe PetroChina will continue to inject assets into its subsidiary and support it with natural gas supplies to grow the company into the number one gas distribution company in China. We like China Oil & Gas too as a mid-cap pure CBM play with significant growth potential. However, we are neutral on China Resources Gas as we are concerned about its potential near-term equity dilution risks
A research note by Yuanta
This blog is a selections of my investment views to my client. If you find it useful or have additional information to share, please do let me know. These blogs are my personal views and is not meant to solicit any sales or investment on any securities or investment. I may have vested interest in some of the counters or investment products, hence please invest at your own risk. As usual invest in what you understand and do your own homework.
ML is a licensed stockbroker with one of Asia Leading Stock Broker firm. To contact him, please email: icewolfmike@gmail.com
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