中国燃气(00384) 　　China Gas shares fell by 12% the past week, underperforming the sectorand the market by 5-10%. We believe the move was mainly driven byPetroChina’s decision to increase gas prices by c15% in northern regions,where CG is exposed. However, the reaction was overdone, in our view, asgas utilities will likely pass on the hike to end-users, albeit after a one- to three-month delay. We expect CG to report solid 1H17 results on 30 Novand recommend accumulating. Current share price implies 19% upsidepotential to our PT. 　　Share weakness due to price hike. PetroChina is reportedly increasingnon-residential city-gate prices in northern regions by 15% effective 20Nov 2016 to 15 March 2017. The move is meant to curb demand duringthe winter in regions with gas shortages. CG has projects in Hebei,Shandong and other northern provinces which may be impacted. 　　Strong results likely on 30 Nov. We expect CG to report solid 1H17results (period end 30 Sep) with 10-15% growth in gas volume and 5%growth in new connections. CG will likely report a smaller forex loss forthe period after converting most of its USD debt to Rmb. 1H16 was alsohit by a one-off litigation expense, which should not be there in 1H17. 　　Volume growth on track at c12% yoy. CG management saidpreviously they saw gas volume growth of 11-12% during Apr-Jul, and13% in Aug. Volume growth is expected to pick up in 2H17 (i.e., Oct2016-Mar 2017) because of winter heating and new connections to coalto-gas users, with FY17 volume growth potentially surpassing 13%. 　　EPS revisions and valuation. We revise down our FY17 and FY18 EPSestimates by 7% to factor in higher finance cost after conversion of USDdebt to Rmb and lower margin from delay in passing through gas pricehikes. CG shares are trading at 11x FY18 P/E, vs peers’ 11-14x.