China Gas Holdings (SEHK:384) Valuation Check After Weaker Half-Year Earnings and Recent Share Price Rebound

China Gas Holdings (SEHK:384) just posted weaker half year earnings, with both sales and net income down from a year ago. This puts the recent share price gains into sharper context for investors.

See our latest analysis for China Gas Holdings.

Even with that earnings setback, the share price has climbed to HK$8.39 and delivered a robust year to date share price return of 27.12%. The 1 year total shareholder return of 41.41% suggests momentum has been rebuilding as investors reassess the risk reward trade off, helped by the newly affirmed interim dividend.

If China Gas has you thinking about where else income and growth might line up, it could be worth exploring other pharma stocks with solid dividends as potential additions to your watchlist.

With profits under pressure but the share price rallying and the stock still trading at a steep discount to some intrinsic estimates, is China Gas now a value opportunity, or is the market already pricing in a growth rebound?

Price to Earnings of 16.2x: Is It Justified?

Based on the latest figures, China Gas trades on a price to earnings ratio of 16.2 times at a last close of HK$8.39, which points to an arguably full valuation against peers.

The price to earnings multiple compares the company’s market value with its current earnings, giving a quick sense of how much investors are paying for each unit of profit in a relatively stable, regulated sector like gas utilities.

In China Gas’s case, the current 16.2 times earnings suggests the market is willing to pay a premium for its forecast profit growth and improving earnings outlook, even though that growth is expected to be slower than the wider Hong Kong market and has been negative over the past year. Relative to an estimated fair price to earnings of 10.8 times, the current multiple looks stretched and leaves room for the valuation to move closer to that fair level if sentiment cools.

Compared with both the Asian gas utilities industry average of 13.6 times and a peer average of 12 times, China Gas’s 16.2 times price to earnings ratio stands out as clearly richer, implying investors are pricing in a stronger rebound than the sector is generally expected to deliver.

Explore the SWS fair ratio for China Gas Holdings

Result: Price to Earnings of 16.2x (OVERVALUED)

However, sustained earnings pressure or a prolonged de rating toward the HK$8 analyst target could quickly unwind recent momentum, which has been driven by optimism on recovery.

Find out about the key risks to this China Gas Holdings narrative.

Another View: Our DCF Says Cheap, Not Expensive

While the 16.2 times earnings multiple looks rich, our DCF model paints a different picture, suggesting fair value closer to HK$15.81, around 47% above the current HK$8.39 price. This raises the question of whether the market is overpaying based on earnings or underestimating long term cash flows.

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out China Gas Holdings for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 908 undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own China Gas Holdings Narrative

If you see things differently or simply prefer hands on research, you can quickly build a personalised view in just a few minutes, Do it your way.

A great starting point for your China Gas Holdings research is our analysis highlighting 2 key rewards and 2 important warning signs that could impact your investment decision.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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