ENN Energy Holdings（2688.HK）：上游天然气成本上升背景下的盈利与目标价下调

ENN Energy Holdings (2688.HK) Earnings & Target Price Cuts amid Increased Upstream Gas Costs CITI'S TAKE We keep our Neutral rating on ENN Energy after cutting its 2026-28E netprofits by 6.3-8.9% and DCF TP by 6% to HK$47/share. After cancelling itsprivatization plan by its parent ENN Natural Gas (600803 CH, Buy), ENNEnergy should have share price driven by fundamentals. We assume its coreprofit to drop 4.3% yoy in 2026E expecting (i) retail gas sales volume +2%yoy, (ii) dollar margin to drop qoq in 2Q-3Q26E impacted by gas unit costrise for Middle East conflict; (iii) new household connections to -15% yoyamid property market downturn; (iv) sales volume of integrated energybusiness to -5% yoy for increased gas costs; and (v) revenue of value addedbusiness to -10% yoy for less new connections. Management neverthelessguides 2026E DPS to be at least HK$3, translating into 6.9% 2026E yield.We open a 90-day negative catalyst watch expecting consensus earningsto be cut. nNeutral Earnings cut for more cautious operating assumptions—After managementupdate, our ENN Energy’s net profits are revised down 6.3-8.9% mainly owing to (i)new household connections to -15% yoy in 2026E (vs. -10% previously) amidproperty market downturn; (ii) sales volume of integrated energy business to -5%yoy in 2026E(vs. flat yoy before) for increased gas costs hence reduced productprice competitiveness versus other kinds of energies; and (iii) revenue of value addedbusiness to -10% yoy this year (vs. +2% yoy previously) for less new connections.After our earning cuts, our 2026/27/28E net profits are 9%/14%/18% belowconsensus (Bloomberg). We expect the consensus earnings to be cut when ENNEnergy reports 1H26 results in late Aug. Privatization cancelled—ENN Natural Gas has announced the cancellation of theprivatization of ENN Energy. The cancellation was in view of the longer thanexpected duration to get CSRC approval and there is no certainty when the approvalwould be granted. Management claimed that share buyback will be put forward. Theshare buyback, including by the chairman and ENN Energy itself, could raise itschairman’s stake in the company by not more than 2% within 12-month period. DPS not less than HK$3 pa in 2026-28E—ENN Energy promises its DPS to be notless than HK$3 pa in 2026-28E. The company claims it is able to pay for this amountexpecting (i) operating cashflow to rise yoy in 2026E driven by more retail gas salesand more contributions from LNG resales overseas; and (ii) capex cut yoy this year. China Gas Sector Pierre Lau, CFAAC+852-2501-2716pierre.lau@citi.com Bella Tianbella.tian@citi.com Key Assumptions Financial Statements Adding Downside 90-Day Catalyst Watch on ENN Energy Holdings(2688.HK) Duration:Catalyst: We open a 90-day negative watch on ENN Energy expecting consensus to cut its 2026E earnings when 1H26 results isreleased in late Aug. After cancelling its privatization plan by its parent ENN Natural Gas, ENN Energy should have shareprice driven by fundamentals. We assume its core profit to drop 3-5% yoy in 2026E expecting (i) retail gas sales volume uponly 1-2% yoy, (ii) dollar margin to drop qoq in 2Q-3Q26E impacted by gas unit cost rise for Middle East conflict; (iii) newhousehold connections to -20% yoy in 2026E amid property market downturn; (iv) sales volume of integrated energybusiness to -5% yoy in 2026E for increased gas costs; and (v) revenue of value added business to -10% yoy this year for lessnew connections. Management nevertheless guides 2026E DPS to be at least HK$3, translating into 6.9% yield based ontoday closing price. Bull/Bear: ENN Energy Holdings (2688.HK) ENN Energy Holdings Company description ENN Energy (formerly known as Xinao Gas) specializes in distributing pipednatural gas to residential households, commercial buildings, and lightindustrial companies in China. The company was founded in 1993 with asingle project in Langfang of Hebei province. It began expanding actively intoother areas in 2002, after restrictions on foreign participation in piped gasdistribution in urban cities were lifted. Investment strategy We keep our Neutral rating on ENN Energy after cutting its 2026-28E netprofits by 6.3-8.9% and DCF TP by 6% to HK$47/share. After cancelling itsprivatization plan by its parent ENN Natural Gas, ENN Energy should haveshare price driven by fundamentals. We assume its core profit to drop 4.3%yoy in 2026E expecting (i) retail gas sales volume +2% yoy, (ii) dollar margin todrop qoq in 2Q-3Q26E impacted by gas unit cost rise for Middle East conflict;(iii) new household connections to -15% yoy amid property market downturn;(iv) sales volume of integrated energy business to -5% yoy for increased gascosts; and (v) revenue of value added business to -10% yoy for less newconnections. Management nevertheless guides 2026E DPS to be at leastHK$3, translating into 6.9% 2026E yield. We open a 90-day negative catalystwatch expecting consensus earnings to be cut. Valuation O