China Gas to streamline LPG supply for new unit
China Gas Holdings, which runs 73 gas projects in the country, will try to improve the profitability of a liquefied petroleum gas (LPG) distributor in which it bought a 53 per cent stake last week by sourcing the fuel directly from Oman Oil, its minority shareholder.
Imports from Oman Oil were expected to come on stream next year, replacing the existing supplies from the Middle East that came via Singapore, China Gas managing director Liu Minghui said yesterday.
The move will eliminate unnecessary supply chain expenses, which eat into the profit margin of Zhejiang Zhongyou Hua Dian Energy, the country's biggest LPG processor and wholesaler.
China Gas also will cut the financing costs of the project by arranging lower interest-bearing US dollar loans and boost working capital by way of trade finance.
'There is room to improve Hua Dian's profit margin with the help of Oman Oil,' Mr Liu said.
China Gas bought 53 per cent of Hua Dian for 318 million yuan (HK$353.44 million) in a deal aimed at ensuring stable supply of LPG to the group's downstream projects.
Hua Dian's biggest asset is its distribution network of four large-scale LPG storage facilities on Xiaomen Island of Wenzhou in Zhejiang; Nansha in Guangdong; Jingjiang in Jiangsu; and Fangchenggang in Guangxi. It also has seven LPG terminals in eastern coastal cities including Shantou, Fuzhou and Haiyan.
Hua Dian's capacity is 220,000 tonnes a year. Mr Liu said China Gas would improve utilisation and almost double its sales volume to 2 million tonnes by 2010 from 1.05 million tonnes last year.
With a net profit of 44.2 million yuan on a turnover of 5.48 billion yuan, Hua Dian's net margin was 0.8 per cent last year. Mr Liu said his group would lift Hua Dian's gross profit margin to 8 per cent next year from 7.3 per cent now.
Goldman Sachs estimates Hua Dian will account for 28 per cent of China Gas' revenue this year. A Thomson First Call poll showed a consensus forecast of HK$296.13 million in net profit for the year to March, up 55.78 per cent from last year.
China Gas will lift Hua Dian's gross profit margin from 7.3 per cent now to: 8%