Becoming the flagship of Hong Kong & China Gas in smart energy business in China

Towngas Smart Energy (1083 HK): Becoming the flagship of Hong Kong & China Gas in smart energy business in China

  • Acquisition of its parent’s smart energy business for a total consideration of Rmb509.2m, equivalent to 1.02x attributable net asset value, which is not expensive
  • Become the flagship in smart energy business in China for its parent
  • The deal bodes well to achieve the target of installing 15GW of distributive solar power by 2025
  • Maintain BUY with TP of HK$6.80

Towngas Smart Energy announced to acquire smart energy business from its parent, Hong Kong & China Gas, for a total consideration of Rmb509.2m, which is equivalent to 1.02x attributable net asset value as at 31 October 2021. We reckon such valuation is not expensive. The deal will be financed through internal resources and will not put pressure on its balance sheet.

The acquired smart energy business include solar power, zero carbon smart city, energy storage, etc. Wholly-owned smart energy companies made a profit after tax of Rmb2.6m while non-wholly-owned companies made an attributable profit of Rmb1.9m for the period ended 21 October 2021. Since the business is still in the early stage of development and many of the acquired companies have not even commenced operation, the full growth potential is not yet unleashed. After the transaction, Towngas Smart Energy will be the flagship of its parent in smart energy business in China. Towngas Smart Energy has already achieved its target of securing 30 industrial parks in 2021 and the acquired business from the parent will pave the way to achieve another target of installing 15GW of distributive solar power by 2025.

Our current rating is BUY with TP of HK$6.80.