Zhongyu Energy Holdings Limited (formerly Zhongyu Gas Holdings Limited)

Data basis.

• FY2024–FY2025: company filings (FY2025 Annual Results).

• FY2021–FY2023: S&P Global Market Intelligence standardized data (via StockAnalysis.com), cross-checked to company turnover and profit figures where available.

S&P "operating income" and "EBITDA" differ from the company's non-HKFRS EBITDA. Company non-HKFRS EBITDA was HK$1,581.6m in FY2025 and HK$1,721.6m in FY2024. It excludes FX and impairments and includes other income and associates.

Income statement

Notes:

• FY2021–FY2023 gross profit is S&P-derived (revenue less cost of revenue). FY2024–FY2025 are as reported.

• FY2021–FY2023 EPS is analyst-computed from S&P net income and weighted shares. FY2023 EPS of 8.7 cents matches the reported HK$0.087.

• FY2021 DPS of 11.0 cents is per S&P, including the HK3.00-cent interim.

• FY2025 company non-HKFRS EBITDA was HK$1,582m; FY2024 HK$1,722m.

Margins (%)

Revenue CAGR FY2021–FY2025: about 2.3% per year (HK$11,345m to HK$12,444m). Revenue peaked in FY2023 at HK$13,644m.

Commentary.

Gross margin compression (19.3% to 13.1%): is the defining trend. Three forces drove it:

1. Collapse of high-margin connection volumes. Residential new connections fell from 276k in FY2023 to 254k in FY2024 and 208k in FY2025.

2. Mix dilution from low-margin LNG and wholesale trading, which inflates revenue without profit.

3. The 2022 upstream cost spike that residential tariffs could not pass through quickly. FY2025 stabilised at 13.1%. H1 2026 improved to 12.8% from 12.0% in H1 2025 as the piped-gas margin rose to 9.3%.

FY2021 was exceptional: It combined a 32.8% revenue surge, an FX gain of HK$224m on an appreciating RMB against USD/HKD debt, and a low tax rate. Net income of HK$1.19bn is not a sustainable base.

FY2022 inflection: An FX loss of HK$523m on unhedged USD/HKD borrowings, as the RMB weakened, cut net income by 85%. Earnings are structurally exposed to RMB moves: a stronger RMB produces gains, as in FY2025 (HK$153m) and H1 2026 (HK$73m).

Finance costs: more than tripled from FY2021 to FY2023 as HIBOR/SOFR rose on offshore borrowings. They then fell 36.9% in FY2025 as effective rates declined. The capitalisation rate fell from 4.00% to 3.81%.

The effective tax rate above 50%: stems from three things: PRC withholding tax on dividends repatriated offshore (HK$30–53m), non-deductible offshore interest and FX at the Cayman/HK level, and prior-year under-provisions (HK$36m in FY2025). This is a persistent drag on value.

Balance sheet

Sources: FY2024–FY2025 company figures; FY2021–FY2023 S&P-standardized. Net debt is borrowings and leases less bank balances and cash.

H1 2026 (30 June 2026):

• Total assets HK$27,690m

• Cash HK$1,394m

• Current borrowings HK$5,582m; non-current borrowings HK$9,137m

• Total borrowings and leases HK$14,744m

• Net debt HK$13,350m

• Total equity HK$8,936m

• NAV per share HK$2.94

• Net current liabilities HK$2,327m

Commentary.

• Equity attributable to owners declined in every year from FY2021 to FY2025, from HK$8.66bn to HK$7.35bn, even though the company was profitable. Three factors explain this:

  1. Negative revaluation of pipelines through OCI (−HK$362m in FY2025, −HK$177m in FY2024).

  2. RMB translation losses in FY2022–FY2024.

  3. Buybacks and dividends. H1 2026 reversed the trend: a pipeline revaluation gain of HK$434m and FX translation gain of HK$208m lifted NAV per share by 10.1%.

Liquidity is the key balance-sheet risk: At end-2025, net current liabilities reached HK$5.59bn and the current ratio was 0.5. The directors relied on about HK$4.1bn of new Q1 2026 bank loans for their going-concern conclusion (FY2025 results, Note 2). By H1 2026, refinancing had shifted HK$3.86bn of debt into non-current, lifting the current ratio to 0.7.

• Goodwill (HK$464m) and intangibles (HK$1,253m, mainly franchise rights) are modest relative to PP&E of HK$16.0bn. PP&E is carried partly at revalued amounts for pipelines.

Cash flow

Source: S&P-standardized via StockAnalysis.com. TTM to June 2026: OCF HK$1,666m, capex HK$954m, FCF HK$712m.

Commentary.

• Capex was cut by more than half from FY2021 to FY2024 (HK$1.51bn to HK$0.70bn) as network build-out matured and management prioritised deleveraging. It rebounded to HK$0.95bn in FY2025, partly reflecting biomass investment.

• FCF has never covered cash interest plus dividends plus buybacks in the five-year window. The gap was funded by net borrowing, which rose from HK$11.3bn to HK$13.2bn.

• Cash interest paid (HK$558m in FY2025) exceeds P&L finance costs (HK$397m) because HK$173m was capitalised into construction in progress.

Ratios

Notes:

• Company-reported net gearing is 1.35x for FY2024 and 1.46x for FY2025, matching the analyst computation.

• Net debt / company non-HKFRS EBITDA is 6.5x for FY2024 and 7.7x for FY2025.

ROIC: S&P TTM (June 2026) is 1.99%. Earlier years were not computed.

Cash conversion cycle: not disclosed. Analyst-computed DSO on trade receivables (excluding contract assets) is about 49 days in FY2025 (HK$1,680m / HK$12,444m × 365) and about 47 days in FY2024.

The headline DSO understates collection risk. HK$1,032m, or 61% of FY2025 trade receivables, was over 360 days old, up from HK$694m (40%) in FY2024. At H1 2026 the figure was HK$1,009m.

Management guidance

Management gives qualitative guidance only (H1 2026 interim, Prospects):

H2 2026: Further implement upstream-downstream price linkage. Pursue ageing-network renovation, urban renewal, night-economy and rural markets. Develop VAS (pipeline beautification, AI valves). Run opportunistic LNG trading and storage peak-shaving.

Biomass: Accelerate domestic and international expansion. Develop the furnace-application market and ASEAN. Build feedstock collection and storage centres and an online feedstock trading platform.

Finance: Deepen green finance and optimise the capital structure.

No numerical revenue, profit, capex or leverage guidance has been issued. Consensus growth expectations are not publicly available.

Bull case

1. Margin recovery is real and compounding. The piped-gas gross margin rose 1.7 points to 9.3% in H1 2026, and gas-sales segment profit rose 41.9%. Each additional 0.1 RMB/m³ of spread on about 2.2 bcm of retail volume is worth about RMB220m of pre-tax profit, which is material against FY2025 PBT of HK$573m.

2. Deleveraging levers exist. Finance costs are falling (−36.9% in FY2025, −16.7% in H1 2026). Capex is moderate (HK$0.95bn). The TTM FCF of HK$712m could fund debt reduction while the green loan cuts the cost of capital.

3. Asset value and optionality. The stock trades at 0.81x book (NAV HK$2.94 versus price HK$2.67). China Gas's 35.99% stake offers takeout optionality.

Bear case

1. Leverage and liquidity are stretched. Net debt of HK$13.35bn is about 9x S&P EBITDA. Recurring reliance on short-term refinancing (HK$5.58bn current) creates exposure to credit tightening.

2. The profit engine is shrinking. Connection fees supplied about one-third of segment profit in FY2025 and are falling more than 30% in H1 2026. Smart energy is being pruned (164 projects versus 283) before biomass has proven scale.

3. Earnings quality is poor. FX gains made up 32% of H1 2026 reported attributable profit (HK$73m of HK$226m). The effective tax rate exceeds 50%. Receivables over 360 days exceed HK$1bn. There have been two auditor switches in about a year.

Key catalysts and monitorables (next 12 months)

Concluding analyst verdict

Zhongyu Energy is a real but under-earning franchise asset. Its 74 exclusive gas concessions, 5.47 million connected households, 36,808 I&C customers and 28,732 km of pipeline represent infrastructure that would be expensive to replicate. A heavy industrial mix in Henan and Hebei supports above-residential tariffs.

The first half of 2026 brought the clearest evidence in years that the core is healing. Price linkage lifted the piped-gas margin to 9.3%. Gas-sales segment profit rose about 42%. Non-HKFRS profit rose 28%, even as reported revenue fell 7.7%.

That improvement, however, is competing with three structural drags. The first is a balance sheet carrying HK$13.35bn of net debt at 1.49x gearing, with a history of going-concern reliance on fresh bank lines. The second is the erosion of connection-fee income, which has been the company's highest-margin profit pool, as China's property market contracts. The third is persistent leakage from a tax rate above 50% and an unhedged FX position that turns RMB moves into earnings volatility.

The biomass pivot through Guangdong Baojie is strategically coherent. Industrial decarbonisation fits Zhongyu's customer base, and Baojie brings patents and an installed base. But it is unproven at a financial scale that would move group earnings. Smart-energy revenue and margins have both declined while the portfolio is restructured.

Governance adds a discount: two auditor changes within roughly a year, a one-third-independent board, a passive 36% anchor holder without board representation, and roughly 27% free float.

At 0.8x book and about 10x trailing FCF, the shares price in much of this. A re-rating requires visible deleveraging, a stabilising receivables book and quantified biomass revenue in the FY2026 accounts.

Verdict: Neutral / Hold. Core-margin momentum is offset by leverage, earnings-quality and governance risks. The FY2026 audited results are the decisive checkpoint.

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It does not constitute investment advice; the author is not a licensed financial advisor.