China Resources Gas (CRG) reported a 1H21 net profit of HK$3.25 bn (up 36% YoY), slightly ahead of our expectation, mainly due to strong recovery in gas volume (up 30% YoY in 1H21 vs a low base in 1H20), driven by growth in industrial (+41%) and commercial (+37%).

Dollar margin remained at Rmb0.58/cu m in 1H21 compared to 2H20, but lower than Rmb0.60 in 1H20, affected by cost hike in piped gas and some spot LNG purchase. Full-year dollar margin is expected to be slightly lower than Rmb0.58/cu m, per management.

At the post-result conference call, management also guided for: (1) its 2H21 gas volume growth to be no less than national average growth (>17% per management); (2) guidance for number of new connections were unchanged at 3.2 mn for FY21; and (3) FY21 M&A capex is raised to HK$4-5 bn (vs previous guidance at HK$3 bn).

We raise our FY21-23E EPS by 2-5% on higher volume growth assumptions, with DCF-based TP revised to HK$46.00 (from HK$41.00). Maintain NEUTRAL on stretched valuation (17x FY21E P/ E) and we prefer China Gas Holdings (11x P/E) in the gas sector.