Fitch Ratings expects rated Chinese gas utilities to see higher EBITDA growth in 2023, which will be driven by the acceleration of gas sales volume and the stabilisation of the dollar margin. Capex is likely to rise as entities expand gas concessions, integrated energy as well as liquefied natural gas terminals and gas storage facilities. Headroom for the entities’ respective ratings or Standalone Credit Profiles remains high.

We expect average gas sales growth for rated city gas distributors to rise to 9% in 2023, from 7% in 2022, as commercial gas consumption recovers post the Covid-19 pandemic and industrial demand rises on falling gas prices. Rated city gas distributors continue to expand their concession areas, which will also boost volume growth. After two years of margin decline, we expect the dollar margin for our rated gas distributors to stabilise in 2023. Supportive government policies on residential gas cost pass-through and lower spot gas prices can mitigate the impact of higher city-gate prices for contracted volume.

We expect the sector’s profit contribution from connection services to fall in the next few years amid China’s weak property market and higher growth from other business segments. This should enhance gas distributors’ cash flow visibility, as connection profit is one-off. Strong growth from non-gas segments should more than offset weaker connection services and enhance business diversification. Large city-gas distributors have an advantage, as they can tap into their existing customers networks.
Source: Fitch Ratings