China Gas Utilities: A New Era: Resilience Matters

Research evidence excerpt

China Gas Utilities: A New Era: Resilience Matters

FoundationM

Executive Summary

The China gas utilities segment has moved from a high-growth, connection-driven phase

into a more mature stage with slower growth. At this stage, balance sheet quality and a

proven dividend payout track record matter more. In this report, we initiate coverage of

two China gas utilities stocks with a conservative view on the segment. The growth

outlook is moderate, while current risk-reward looks balanced. We are EW on both CR Gas

and CGH, but prefer CR Gas given its healthier balance sheet, rising payout ratio, and

shareholder-friendly buyback scheme.

Our key conclusions

• The industry is entering a structurally loose supply-demand dynamic

through 2030. We forecast a 3% gas demand CAGR in 2025–30, implying

~68 bcm of incremental demand. Supply additions that could reach as

much as 113 bcm (47 bcm from domestic production, 3 bcm from pipeline

imports, and 63 bcm from LNG contracts) should comfortably cover this.

• Dollar margin recovery will be modest, not V-shaped. We expect dollar

margins to stay largely flat in 2026 and drift up towards Rmb0.55–0.57/m3

by 2030, driven by continued residential cost pass-through. A return to

Rmb0.6/m3 or higher would require better-than-expected policy execution

in tier-3/4 cities and rural areas.

• Connection risk is expected, but manageable. Connections contributed 6–

7% of revenue and 15–16% of segment profit in 2025 for both CR Gas and

CGH, down from ~20% and 50–60%, respectively, in 2020. Further

downside is manageable, and we favour companies with stronger balance

sheets, higher tier-1/2 city exposure, and lower penetration rates, which

points to CR Gas.

• Weather is the near-term wildcard. NOAA forecasts a moderate-to-strong