CHINA Resources (Holdings) Co is looking to combine two of its Hong Kong-traded utility units, amid a shift from coal-fired power.

China Resources Power Holdings Co, an electricity generator, and China Resources Gas Group Ltd, a natural gas distributor, are in talks to form an integrated energy group under their parent, the two subsidiaries said in separate statements to the Hong Kong stock exchange yesterday. Neither company provided details of their discussion nor a time line for the negotiations.

China Resources Power, 64 percent owned by China Resources (Holdings) according to its annual report, largely relies on coal for electricity generation. Its parent may see as inevitable a shift to cleaner fuels such as natural gas, after the government stepped up its campaign to fight air pollution, according to Shi Yan, an analyst at UOB-Kay Hian Ltd in Shanghai.

"It's a trend that major coal-fired power plants have to gradually shift to natural gas to meet higher environmental standards imposed by the government, and the merger is designed to serve that target," Shi said.

China Resources Power's market size is HK$121.2 billion (US$15.6 billion), while China Resources Gas, also 64 percent owned by the same parent according to its annual report, is valued at HK$48.6 billion. The parent controls 11 listed companies in China, employs 400,000 workers, and made a profit of HK$41.1 billion on revenue of HK$405.7 billion in 2012, according to its website.

With a price-to-earnings ratio of 22 times, China Resources Gas is more highly valued by investors, Rajesh Panjwani, head of regional power research at CLSA Asia-Pacific Markets, said in an e-mailed note. China Resources Power trades at a multiple of 12.