JP Morgan: Upgrades HK & CHINA GAS (00003) rating to "Overweight," target price raised to HKD 7.75.

JPMorgan released a research report stating that it has upgraded the rating of HK & CHINA GAS (00003) from "Neutral" to "Overweight." JPMorgan increased its profit forecast for gas from 2026 to 2028 by 4% to 6% to reflect higher sustainable aviation fuel profit assumptions, and raised the target price from HKD 7.3 to HKD 7.75. HK & CHINA GAS reported a net profit of HKD 3.64 billion in the first half of the year, a year-on-year increase of 23%, significantly exceeding the market's expectation of a 4% growth for the whole year, with sustainable aviation fuel business being the main driver of growth. With production capacity doubling and high oil prices driving up average selling prices, the bank forecasts that sustainable aviation fuel will contribute over HKD 1 billion to profits this year, leading to an overall profit growth of over 10% for gas (last year's net profit showed negative growth). The group's capital expenditure in the first half of the year was HKD 2 billion (compared to HKD 2.5 billion in the same period last year), and the expected stable dividend policy is sustainable. Although the management maintains a cautious stance on dividends, it does not rule out considering an increase in dividends if strong profit growth continues for more than a year. The gas dividend yield is 5.2%, over 80 basis points higher than the average of other Hong Kong utilities, making the risk-return attractive.