1、Buy,Deutsche BankMarkets Research,AsiaChinaUtilitiesUtilities,IndustryChina Gas Utilities,Date21 January 2013Industry UpdateEric Cheng, CFAMichael Tong, CFA,Natural gas and LNG tour takeaways,Research Analyst(+852) 2203 6202,Research Analyst(+852) 2203 6167,eric- ,Site visits in Beijing, Rudong, and
2、 ZhangjiagangWe visited three listed companies (Beiijing Enterprises, Beijing Jingneng, andKunlun Energy) and their businesses relating to natural gas transmission, gas-fired power co-generation, LNG receiving terminals, and LNG storage andrefueling station facilities. We see upside risks from the c
3、apacity expansion ofthe Shaanxi-Beijing Pipelines, as the planned capacity of the No.4 Pipeline mayreach 30bcm p.a. (vs. 10-15bcm p.a. discussed previously). Such expansionwill be positive to Beijing Enterprises (BJE) and Kunlun Energy, in our view.Greater-than-expected expansion likely at the Shaan
4、xi-Beijing No.4 Pipeline,Kai-Ting Wong, CFAResearch Analyst(+852) 2203 6235kai-Companies FeaturedKunlun Energy (0135.HK),HKD17.122011A 2012E 2013E,The Shaanxi-Beijing No.4 Pipeline is still at the planning stage and has not yet,P/E (x),15.43 18.56 15.79,been approved by the NDRC. Under the current p
5、lan, the No. 4 Pipeline willhave a designed gas transmission capacity of 30bcm p.a. (double the 10-,EV/EBITDA (x)Price/book (x),9.02.6,8.53.0,6.72.6,15bcm p.a. capacity we previously expected; it will raise the transmissioncapacity by a further 80-90%). The preliminary estimated investment costcould
6、 be c.RMB20-25bn and we believe the capex can be covered by internallygenerated cash flow from the No.1-3 Pipelines (assuming a 70%/30%debt/equity split).,Beijing Enterprises (0392.HK),HKD52.30 Buy2011A 2012E 2013EP/E (x) 19.75 19.32 14.96EV/EBITDA (x) 10.6 12.3 10.5Price/book (x) 1.4 1.5 1.4,Capaci
7、ty at the LNG receiving terminal not yet fully ramped upThe Jiangsu Rudong LNG receiving terminal processed c.2.35m tons of LNG in2012, which represents c.67% capacity utilization. We believe the plant isunlikely to reach full utilization until 2014 before PetroChinas other long-termLNG contract com
8、es into effect. The terminal plans include the investment of afurther RMB1.1bn on the phase II project, which will expand its capacity to6.5m tons p.a. by 2014 (currently 3.5m tons p.a.). The tariff setting mechanismis based on a return on investment of 8% assuming full utilization.Significant growt
9、h in the vehicle LNG market in BeijingWe also visited Beijing Gas pilot LNG storage and refueling station facilities inBeijing. Vehicle CNG/LNG consumption is likely to increase significantly toc.1.5bcm p.a. by 2015, especially given the strong push from the governmentto promote its usage as a means
10、 to curb the rising air pollution problem inBeijing. The current plan for Beijing is to add 20 LNG and 20 CNG refuelingstations in 2013, and add a total of 100 LNG and 100 CNG refueling stations by2015.Construction of Beijings gas-fired power plants on-trackConstruction of Beijings gas-fired cogener
11、ation projects looks to be on-track,with the Gaoantun project (845MW) and the Gaojing project (1,308MW) bothexpected to be completed by end-2013. This should be the key growth driverfor Beijings natural gas consumption in 2014. Pass-through of a potentialhigher upstream natural gas cost will be one
12、of the key risks and a majoroverhang in 2013, though the government should in principle allow the gas-fired power plants to adjust their on-grid power and heating tariffs accordingly.Sector valuation and risksWe value the sector using DCF primarily. Key risks include an inability to passthrough risi
13、ng upstream gas costs, lower-than-expected gas sales volume,connection fees and margins, value-accretive acquisitions, and regulation ontariff/return in the long term (see p.10 for details)._Deutsche Bank AG/Hong KongDeutsche Bank does and seeks to do business with companies covered in its research
14、reports. Thus, investors shouldbe aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors shouldconsider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYSTCERTIFICATIONS ARE LOCATED IN APPENDIX 1. M
15、ICA(P) 072/04/2012.,21 January 2013UtilitiesChina Gas UtilitiesKey takeawaysKunlun / Beijing Enterprises: PetroChina Beijing Gas Pipeline Co.We met the management of PetroChina Beijing Gas Pipeline Co. in Chaoyang District,Beijing (Figure 1), and visited its Tongzhou east station which connects to t
16、he city gasnetwork of Beijing Gas (Figure 2).,Figure 1: PetroChina Beijing Gas Pipeline Co. officeSource: Deutsche Bank,Figure 2: Tongzhou east stationSource: Deutsche Bank,Below are the key takeaways:Gas transmission volume marginally below expectation in 2012: The gastransmission pipeline achieved
17、 a gas transmission volume of 23.8bcm (+17%yoy vs. 20.3bcm in 2011), slightly below our earlier expectation of up 20% yoy;we believe this is due to some transmission bottlenecks in December 2012.Utilization to further ramp-up: Management did not give explicit guidance forthe gas transmission volume
18、in 2013. We believe utilization will continue toramp up further as the pipeline has not yet achieved its full utilization designedcapacity potential of 35bcm p.a.We note that the pace of the pipeline utilization ramp-up will also dependon the customer mix (e.g., more intermittent industrial gas user
19、s to take upthe trough summer demand), and the availability of more gas storagecapacity to accommodate peak winter demand.Shaanxi-Beijing No.4 Pipeline capacity expansion of a further 30bcm p.a.: TheNo.4 Pipeline is currently at the planning stage and has not yet been approvedby the NDRC. The design
20、ed capacity is likely to be 30bcm p.a. (doublecompared with our earlier expectation of 10-15bcm p.a.).The preliminary investment cost estimate is c.RMB20-25bn and thepipeline will be 1,274km long under the current draft plan (Figure 3).The No.4 Pipeline will source natural gas from Central Asia (vs.
21、 the majorityfrom Changqing gas field in Shaanxi Province currently).,Page 2,Deutsche Bank AG/Hong Kong,21 January 2013UtilitiesChina Gas UtilitiesThe No.4 Pipeline is likely to be financed 30% through equity and 70% bydebt. We believe the capex required can be sufficiently covered by theinternally
22、generated cash flow from the No.1-3 Pipelines.We have not factored this expansion into our estimates because theproject has not been approved by NDRC, but assuming an 11% investmentreturn we acknowledge there could be c.4% upside potential to BJE andKunlun.Figure 3: Overview of Shaanxi-Beijing Pipel
23、ines and LNG receiving terminals under PetroChina/KunlunSource: Deutsche Bank, company dataThe economic life likely to be much longer than the depreciation period of 14years: PetroChina Beijing Gas Pipeline uses a depreciation period of 14 years,which is in line with the depreciation period for all
24、other midstream gaspipelines held under PetroChina. However, the actual economic life is likely tobe much longer and could be at least 25-30 years, in our view.We believe the key reason for the more aggressive depreciation policy isthat it helps to reduce payments of profit tax.,Deutsche Bank AG/Hon
25、g Kong,Page 3,21 January 2013UtilitiesChina Gas UtilitiesThe transmission tariff is set by the NDRC and has remained stable: The gastransmission tariff for the Shaanxi-Beijing Pipelines is determined by the NDRC(different tariffs for different provinces) using a cost-plus approach.Based on investmen
26、t return on No 1-3 pipeline, we estimate an investmentreturn of c.11-12% for the pipelines.The tariff has remained stable over past years and has never been cut.Some background info on PetroChina Beijing Gas Pipeline Co.PetroChina Beijing Gas Pipeline Co. is 60%/40% joint venture between Kunlun Ener
27、gyand Beijing Gas. The joint venture holds the Shaanxi-Beijing gas transmission projectwhich mainly consists of three major pipelines with a combined designed capacity of35bcm p.a.The first pipeline became operational in 1997, with a total length of 1,098kmand an annual transmission capacity of 3.3b
28、cm.The second pipeline commenced operations in 2005, with a total length of935km and an annual capacity of 12bcm. The capacity of the pipeline wasfurther expanded to 17bcm p.a. in 2009.Construction of the third pipeline started in May 2009 and was largelycompleted by the end of 2010. The third pipel
29、ine is 896km long, and has anannual capacity of 15bcm.In addition to the No.1-3, there are couple of branch pipelines included in theShaanxi-Beijing gas transmission project (e.g., the Yong-Tang-Qin Pipeline),and nine gas storage facilities along the pipelines.Kunlun: Jiangsu LNG receiving terminal
30、and refueling stationWe visited Kunlun Energys LNG receiving terminal in Rudong County, Jiangsu Province(Figure 4) and its LNG refueling stations in Zhangjiagang, Jiangsu Province (Figure 5).,Figure 4: PetroChina LNG receiving terminal in JiangsuSource: Deutsche BankBelow are the key takeaways:Page
31、4,Figure 5: Kunlun LNG refueling station in ZhangjiagangSource: Deutsche BankDeutsche Bank AG/Hong Kong,21 January 2013UtilitiesChina Gas UtilitiesProcessed 2.35m tons of LNG in 2012: The terminal went through a full year ofoperations in 2012 and processed 2.35m tons of LNG in 2012 (which implies ac
32、.67% utilization out of a total processing capacity of 3.5m tons p.a.).A total of 24 ships unloaded LNG cargoes in 2012. Of the total 2.35m tonsof LNG, over 95% of LNG (c.3.12bcm) was gasified and supplied throughthe pipelines while the remaining (c.0.11bcm) was sold as LNG throughtrucks.Phase II ex
33、pansion to add a further 3m tons p.a. capacity: The terminal plansinclude the start of the phase II expansion project which will add another 3mtons of processing capacity p.a. (raising the total terminal processing capacityto 6.5m tons p.a.). The investment cost is estimated by the company at around
34、RMB1.1bn and is currently awaiting final approval from the NDRC.Construction for phase II expansion is likely to start in 2013 and completeby end-2014.In the long run, the terminals total planned capacity is 10m tons p.a. butthere is no definite timeline so far.Storage and gasification charges set b
35、y the NDRC based on an ROI of 8%: TheNDRC sets the gasification and storage charges and generally allows an 8%ROI under a full utilization scenario.The current storage and gasification charge is RMB0.345/cm (including17% VAT). The charge for the LNG sold to trucks is c.RMB0.31/cm.(including 6% busin
36、ess tax).The charges will be reviewed by the NDRC once every three years. As theunit investment cost for phase II is lower compared to that for the firstphase, there may be downside to the current levels once phase II iscompleted.The average depreciation for the LNG terminal is c.15 years (a longer
37、period forstorage tanks and docks, and a shorter period for equipment).More value creation by selling LNG to vehicles vs. through pipelines: Thoughthe LNG receiving terminal itself does not take price risk and can make morerevenue if the LNG is all gasified and sold via pipelines, there is greater v
38、aluecreation for PetroChina as a group if more LNG is sold for vehicle consumption:The LNG, once trucked to the LNG refueling station in Zhangjiagang, canbe sold to public buses at RMB6.95/kg (c.RMB5-5.5/cm and c.30% cheapervs. diesel). On our estimate, this tariff is much higher than the c.RMB2-2.5
39、/cm PetroChina gets when the LNG is gasified and sold via pipelines.The LNG refueling station we visited in Zhangjiagang supplies LNG toaround 100 public buses (out of a total of 170 public buses in the citywhich are served by three Kunluns LNG refueling stations).Currently, c.50% of Zhangjiagangs p
40、ublic buses are powered by LNG, andthe proportion is likely to increase over the next few years once all the newpublic buses are LNG powered.Some background info for PetroChina LNG Jiangsu CompanyPetroChina LNG Jiangsu Company holds the Jiangsu LNG receiving terminal, which islocated on an artificia
41、l island in Rudong, Jiangsu Province. The phase one projectstarted construction in January 2008, with PetroChina holding 55%, Pacific Oil & Gas,Deutsche Bank AG/Hong Kong,Page 5,21 January 2013UtilitiesChina Gas Utilitiesholding 35%, and Jiangsu Guoxin Investment Group Limited holding the remaining
42、10%stake. PetroChina transferred its stake to Kunlun Energy in 2010.The total investment of the LNG receiving terminal is c.RMB6.3bn, and consistsof an artificial island, the receiving terminals, a dock and trestle, a submarinepipeline and a gas trunk line.The LNG terminal mainly receives, stores an
43、d gasifies overseas imported LNGcargoes, and is connected to the Ji-Ning Branch Pipeline and the West-to-EastPipeline.Phase I of the receiving terminal has a designed capacity of 3.5m tons p.a.(c.4.8bcm of natural gas p.a.) It started receiving its first LNG cargo on 24 May2011.Phase II of the proje
44、ct (currently pending approval from the NDRC) will furtherraise the designed capacity to 6.5m tons p.a.Beijing Enterprises: LNG storage and refueling station facilitiesWe visited Beijing Gass LNG storage facilities and refueling station in Ciqu, TongzhouDistrict in Beijing municipality (Figure 6 and
45、 Figure 7). This facility commencedoperations in September 2012 and serves as an intermediary station that can functionas both a LNG storage facility for peak shaving during winter season and a refuelingstation for LNG trucks and public buses in Beijing.,Figure 6: Beijing Gas LNG storage facilitySou
46、rce: Deutsche Bank,Figure 7: Beijing Gas LNG refueling stationSource: Deutsche Bank,Below are the key takeaways:Sources of LNG: Currently, the facility sources LNG from various LNGliquefaction factories in Hebei, Tianjin, Shanxi and Inner Mongolia.Investment cost: The total investment cost for this
47、facility is c.RMB20m (c.25%of the cost for design and construction and c.75% of the cost for equipmentprocurement).Tariff and procurement cost of LNG: The LNG procurement cost is not set bythe government and will fluctuate based on market demand (ranging fromc.RMB4,900/ton or c.RMB3.6/cm during the peak winter demand season andc.RMB3,800/ton or c.RMB2.8/cm during the summer trough demand period).,