Beijing Enterprises: Lowering Fair Value Estimate by 4% to HKD 38; All Eyes on Dividend Policy

We lower our fair value estimate of Beijing Enterprises Holdings, or BEH, to HKD 38.00 per share from HKD 39.50, after taking into account the impact of unfavorable exchange rates and a lower profit contribution from its 23%-owned associate, China Gas, amid a slower cost pass-through schedule. Nevertheless, we expect gas demand to remain robust, as China’s carbon-peak commitment will continue to promote the use of cleaner energy such as natural gas. We expect BEH’s public utility business to continue to deliver steady profit growth, and we forecast the company’s net profit to grow at a five-year CAGR of 6.2% between 2022 and 2027, down slightly from 6.5% in our earlier forecast. We believe the shares are currently undervalued, trading at only 0.4 times price/book—a significant discount relative to the value of its underlying assets. We think a further raise of dividend payout ratio will likely drive a rerating for the firm.