China Tian Lun Gas Is An Attractive Dividend Stock

4.57
14 ratings

Investment Overview


China Tian Lun Gas is involved in the business of transportation and sale of gas. The company is also in the business of gas pipeline and sale of liquified natural gas.


In the last one year, China Tian Lun Gas stock has been an under-performer. The stock has declined by 8.3% and currently trades at HK$6.6.


I believe that this correction and weakness in the stock has been triggered by the novel coronavirus pandemic. However, as economic activity crawls back to normalcy, China Tian Lun Gas is an attractive investment.


At the current price-to-earnings ratio of 7.6, the stock is worth accumulating. In addition to the attractive valuations, the company is worth considering for dividend investors.


China Tian Lun Gas has a current dividend yield of 3.9%. I believe that dividends will sustain and potentially grow in the coming years. This article will discuss the business growth triggers for holding this view.


Growth Triggers For China Tian Lun Gas


It’s important to note that natural gas consumption will growth globally in the next decade. As the world looks for cleaner sources of energy, the demand for natural gas will remain robust.


According to China Tian Lun Gas, China is likely to become the second largest consumer of natural gas in the coming years. If this view holds true, the company has ample scope for growth.


Specific to China Tian Lun Gas, the company operates 63 city gas projects, 1 LNG plant, 6 long-haul transmission pipelines and 51 gas refilling stations. For the current year, the company expects to serve 4.1 million cumulative households.


The important point to note is that the company’s presence has been expanding in terms of penetration within China. This includes city and rural households. To elaborate, between December 2019 and June 2020, the company added 488,935 households.


Even as sales volumes were hit, customer addition has been aggressive. This is likely to yield results in the coming quarters. I would mention here that the company is still guiding for core earnings growth of 8% to 10% for the current year. In the coming year, I would not be surprised if core earnings growth is well above 10%.


The point I am making here is that the slowdown in sales volume is temporary and provides a good entry point into the stock. Besides growth in number of households served, the company will also benefit from an increase in per capita consumption in the coming years.


From a financial perspective, the company reported cash and equivalents of RMB1.3 billion as of June 2020. In addition, the company has a debt-to-capital ratio of 64.5%. Therefore, there is ample financial flexibility to pursue aggressive growth.


In addition, the company reported robust operating and free cash flow for the first half of 2020. This has two implications –


First, the company has ample cash buffer for growth projects (organic and inorganic). The company is targeting mature projects for acquisition. These projects can deliver steady returns and improve the cash flow profile.


Second, the company has ample financial resources to pay dividends and potentially increase dividends. As a matter of fact, the company’s dividend pay-out ratio has increased from 23.1% in 2016 to 29.3% in 2019. This is the reason to believe that the company is a quality dividend stock.


Concluding Views


The increasing adoption of natural gas is a key growth trigger for China Tian Lun Gas. Not just for the coming years, but for the next decade.


I believe that the company is still at an early growth stage. As its presence expands beyond Henan province, the company’s growth will be attractive.


In addition, healthy dividends will sustain and potentially increase in the coming years.

These factors make me bullish on China Tian Lun Gas stock. At current levels, fresh exposure can be considered.


References


http://tlgas.tianlun.net/uploadfiles//pdf/2020/08/26/2008262158180300025298.pdf


https://www.hkex.com.hk/Market-Data/Securities-Prices/Equities/Equities-Quote?sym=1600&sc_lang=en

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Natural Gas Utilities