Property lifts profit at Towngas as trade lags
Hong Kong and China Gas (Towngas), suffering slow growth in its core business, says property developments will continue to fuel profit after a $1.36 billion gain from apartment sales and a revaluation boosted the company's interim result by 57.36 per cent.
Its share of sales of Grand Promenade flats in Sai Wan Ho and King's Park Hill houses in Ho Man Tin yielded $1.03 billion and revaluation of the International Finance Centre added $325.5 million.
It posted a profit of $3.12 billion for the six months to June.
The stellar performance from 30 piped-gas projects on the mainland - almost doubling to $136.7 million from $69.6 million - disguised lacklustre results from its mainstay supply of piped naphtha gas in Hong Kong.
Towngas' taxed profit contribution climbed 0.6 per cent to $1.76 billion.
Gas sales in Hong Kong were up by the same amount in the first half, with expected growth in the second half at 'an unexciting rate of 1 per cent to 3 per cent', chief financial officer John Ho Hon-ming said yesterday.
Despite solid economic growth, residential gas sales were up only 2 per cent. The closure of a couple of restaurant chains left commercial sales 1.5 per cent lower.
A sharp increase in naphtha gas prices due to higher crude oil prices prompted Towngas to recover $509.9 million in fuel charges from customers in the first half, 73.31 per cent above the previous half.
Despite pressure to raise basic tariffs, Mr Ho said that the utility had no immediate plan to do so.
Deutsche Bank and Credit Suisse First Boston believe Towngas will refrain from raising prices until the middle of next year, when the government is expected to finish drafting new regulations for the electricity market.
They pointed out that any tariff rises at Towngas, whose profit was not regulated by the government, could result in the imposition of a cap on earnings.
Mr Ho said Towngas' growth would hinge on property sales, the mainland gas portfolio and demand from Disneyland.
A Thomson First Call consensus showed a full-year net profit of $4.79 billion.
Mr Ho added that Towngas was diversifying into the mainland's water supply sector, and aimed to conclude three more projects in the coming 12 months. It has earmarked $1 billion for investment in water this year and a further $4.5 billion in the next three years.
UBS analyst Alice Hui Suk-fong, who expected Towngas' full-year profit contribution from apartment sales to be $2 billion, said: 'Property is where the growth will come from in the next couple of years.'
Towngas' interim dividend stayed unchanged at 12 cents per share. Earnings per share were 58.8 per cent higher at 55.9 cents.