JPMorgan released a research note stating that ENN ENERGY (02688) still offers good value at current levels, even if the privatization proposal ultimately lapses.
The bank believes the market has already priced in the possibility that the offer will not be extended, while any extension would provide value for investors.
JPMorgan maintains an "Overweight" rating on ENN ENERGY with a target price of HK$68.
The report notes that ENN ENERGY's share price has fallen approximately 25% year-to-date, while the Hang Seng China Enterprises Index has only declined around 6%.
This reflects the gas sector's modest fundamentals and the market's digestion of expectations that the privatization may not succeed.
Looking back to last year, ENN ENERGY outperformed its peers due to privatization hopes.
However, as the offer has been extended for over a year, market expectations have cooled, leading to its underperformance so far this year.
JPMorgan points out that while it is difficult to judge the likelihood of another extension, the parent company's incentive to push for privatization may be lower than a year ago.
This is due to the possibility that liquefied natural gas (LNG) prices may remain elevated for longer, diminishing the value of the downstream business compared to before.
Concurrently, the parent's listed arm, ENN Natural Gas Co., Ltd. (600803.SH), holds multiple LNG contracts and can engage in more international trade.
Therefore, the value of the scheme within the offer involving an exchange of ENN ENERGY shares for those of ENN Natural Gas Co., Ltd. may be less attractive than it was a year ago.
The bank notes that the final deadline for the privatization proposal is this Friday, the 12th.
While the ENN Group has the right to extend the offer period, if it decides not to do so, the offer may lapse.
Even if the proposal does not proceed, the bank believes downside for the share price is limited.
ENN ENERGY has committed to maintaining at least a stable dividend per share of HK$3.00, which currently implies a dividend yield of 5.8%.