Hong Kong and China Gas has reported interim results: 1H26 revenue of HKD29.53bn (+7.3% YoY), a post-tax operating profit of HKD4.75bn (+18.8% YoY), a core business profit of HKD3.96bn (+22.4% YoY), and an attributable net profit of HKD3.64bn (+22.8% YoY). The attributable net profit exceeded the upper bound of our forecast (HKD3.1bn), driven by a stronger-than-expected contribution from the green-fuel business, which delivered HKD540mn in post-tax operating profit. The August gas tariff increase in Hong Kong (China) has taken effect, while the Chinese mainland gas margin recovery continues, and the 1H26 spread widened by RMB0.01 YoY to RMB0.55/cm. The company maintained an interim dividend of HK12 cents. We forecast a full-year dividend of HK35 cents, implying a yield of c.5.2% (as of the 18 August 2026 market close). Maintain BUY, given that the green-fuel profit inflection is now confirmed, high order visibility, Hong Kong gas volume declines narrowing month by month, and a steady dividend policy.
Mainland city-gas: widened spread with limited impact
Mainland city-gas sales volume was 18.60bcm in 1H26, flat YoY. A warm winter weighed on commercial & industrial (C&I) volumes, offset by new residential connections. The margin recovery continued, with the composite city-gas spread widening by RMB0.01 to RMB0.55/cm. Residential cost pass-through coverage has exceeded 90%, and C&I pass-through is now complete. New residential connections totaled 499k in 1H26 (-28% YoY), as the reliance on connection fees continues to decline. In response to China’s 15th Five-Year Plan for oil and gas encouraging upstream direct supply, the company’s group-procured gas already accounts for 10-15% of total volume. It holds long-term contracts with the three national oil companies totaling 15bn cbm, and with spot LNG prices elevated in 1H26, some direct-supply customers have switched back to pipeline gas. The company’s ‘gas+’ integrated energy business posted revenue of RMB790mn (+13% YoY) and a gross profit of RMB220mn (+14% YoY), opening a second growth curve beyond gas sales.
Raise earnings forecasts and target price
Reflecting higher green fuel earnings, we raise our share-of-profit estimates from associates. We lift our 2026/2027/2028 attributable net profit forecasts by 6.5/4.1/3.9% to HKD6.48/6.71/7.03bn (three-year CAGR: 7.3%), with core profits of HKD6.79/7.02/7.34bn (3Y CAGR: 7.0%), and BVPS of HKD3.18/3.19/3.21. We maintain our 2026 target PB of 2.5x, a 19% premium over the company’s three-year historical average of 2.1x, and derive our target price of HKD7.95, implying c.17% upside potential from the current share price. We see green fuel, renewable energy, and ancillary businesses continuing to deliver incremental profit, strengthening the foundation for long-term dividend payouts. Maintain BUY.
Risks: green-fuel price pullback or longer maintenance than we expect, weaker Hong Kong gas demand than we expect, weaker mainland gas demand and connections than we expect, and further delays to IMO shipping decarbonization policy.