WHAT THE BROKER SAID
HONG KONG & CHINA GAS produces, distributes and markets gas under the Towngas brand name and is involved in related activities.
A Merrill Lynch stock report issued around this time last year, maintained a 'strong buy' recommendation on Towngas. Merrill said the firm was trading at a substantial discount to its price objective of HK$11.90 per share, representing an upside potential of 20 per cent.
The report said that due to uncertainties over the returns of the regulated power companies in light of an upcoming review of the Scheme of Control agreement, long-term risk for Towngas 'could be the lowest in the Hong Kong utility sector'. Towngas was not planning to increase tariffs during the year. But given that economic recovery was forecast for later in the year, Merrill predicted the firm could increase prices in 2003.
Towngas' earnings per share rose 2 per cent to 54 HK cents last year, even though its net profit declined 3 per cent to HK$3.08 billion.
On Wednesday, the company unveiled measures allowing 8,000 restaurant and hotel customers to extend their payment period by 60 days between May and July on bills totalling an estimated HK$540 million. However, Towngas did not intend to cut tariffs. It said sales had grown 3.5 per cent in the first three months of the year from the previous quarter. Gas consumption at hotels and restaurants had fallen 10 per cent since the outbreak began, cushioned by a rise in residential consumption. Sales in April fell 1-2 per cent.
Towngas shares closed at HK$9.30 on Friday.