On Tuesday, Bernstein analysts downgraded China Resources Gas Group Ltd. from Outperform to Market Perform. They also lowered the price target from HK$34 to HK$24. This change reflects growing concerns about the challenges facing Chinese gas distributors in 2025.
Earnings growth in this sector is expected to stay weak throughout the year. Stagnant tariffs and problems in China’s property market are major reasons for the slow growth. Although retail gas sales increased slightly by 3-5% in 2024, the impact of a warmer winter led to reduced overall demand.
Margins and business expansions improved but only as expected. These changes were not strong enough to boost the overall performance of companies in this industry. Most gas distributors are planning to achieve similar sales growth as last year, signaling a lack of significant progress.
The situation is further complicated by new U.S. tariffs. These tariffs could reduce China’s GDP growth by 1 to 2 percent, putting more pressure on the already strained gas market. Connection fees, which are charges for new gas hookups, are also expected to drop by 10 to 30 percent, a steeper decline than earlier forecasts.
The combination of slow sales growth, tariff risks, and falling fees creates a difficult outlook for China Resources Gas Group Ltd. in 2025. Investors should be cautious as these factors may limit the company’s earnings potential and market performance.
China’s gas market relies heavily on economic growth and new housing development. The downturn in the property sector has reduced demand for new gas connections and lowered overall consumption. A milder winter season also contributed to the reduced gas use during 2024.
The U.S. tariffs add an extra challenge by slowing economic growth and affecting demand indirectly. This could tighten profit margins and slow business expansion in the gas industry further.
Bernstein’s downgrade reflects these challenges and highlights the risks for China’s gas companies in the coming year. Market watchers should keep a close eye on how these factors develop.
