Made in China-Gas Utilities:return regulation;CTIH,Inovance,Moutai,Baozun,Humanwell

On 22 Jun 2017, the NDRC officially released the Guidance of Strengthening Supervisions of Distribution Tariffs, which we think is more favorable and positive to downstream than the draft version. There are mainly 3 differences/revisions compared to the draft: 1) the regulated return is set at 7% vs. 6% in the draft; 2) During cost assessment, distribution line loss is set at 5% and decline to 4% within 3 years (vs. a fixed 4% in the draft); 3) In the draft version, it requires the volume to be determined at 60% utilization of capacity when calculating distribution tariffs, while the final version does not mention the “60%” and delegate the flexibility to local govts. The NDRC requires the local government to issue corresponding notices based on this guidance before June 2018. We believe the actual impact to gas distributors should be gradual and mild. We reiterate Buy on China Gas, ENN Energy, and BEHL.