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Sinopec

Steel pipe maker Chu Kong up 9.6pc, buoyed by growth in gas projects

PUBLISHED : Tuesday, 21 August, 2012, 12:00am
UPDATED : Tuesday, 21 August, 2012, 3:56am

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Chu Kong Petroleum & Natural Gas Steel Pipe, one of the mainland's biggest makers of steel pipes, saw its share price jump 9.6 per cent yesterday on a 50 per cent rise in first-half net profit and its chairman's upbeat outlook for industry demand.

The Guangdong-based firm's net profit for the first six months rose to 170.34 million yuan (HK$208.13 million), up from 113.21 million yuan a year earlier.

Revenues grew 26 per cent to 2.06 billion yuan, thanks largely to the delivery of orders for the Shenzhen-to-Hong Kong section of PetroChina's second west-to-east gas pipeline, and the Liwan deep-sea gas project in the South China Sea led by Canada's Husky Energy. Gross profit margin edged up to 17.3 per cent from 16.5 per cent because of higher-margin deep-sea pipeline orders.

The profit growth was largely due to 51.2 million yuan in government subsidies, up from 4 million yuan a year earlier. Excluding this income, pre-tax profit grew just 16.2 per cent.

Chairman Chen Chang said these subsidies were mostly from the government of Lianyungang, in Jiangsu, where Chu Kong has been building a major base.

"We wanted to set up a production base to the north of our current base in Guangdong so that we would be closer to customers and suppliers of steel materials in order to reap transport cost savings," Chen said. He declined to reveal how the subsidies were granted, saying only that the funds were linked to investment in the new plant, which is set to be finished by the end of next year.

Chen expected high growth in the oil and gas steel pipe industry in the next few years, led by the construction of four major long-distance gas pipelines linking Xinjiang with eastern and southern China. Two will be built by PetroChina and two by Sinopec.

Meanwhile, rival Shengli Oil & Gas Pipe Holdings reported a 19.7 per cent fall in first-half net profit to 9.8 million yuan, despite a 45 per cent increase in sales revenue to 617.4 million yuan. Gross margin shrank to 4.8 per cent from 6.7 per cent because of losses in one project and contraction of the pipe-processing business.

Still, the formerly privatised and spun-off unit of Sinopec parent China Petrochemical saw its share price rise 7.1 per cent to 60 HK cents. It has fallen 25 per cent in the year to date, compared with the Hang Seng Index's 6 per cent gain.

Shengli said on Sunday that its pact with Panama's Iri de Colombia, to set up a pipe manufacturing venture in Panama, had lapsed because Shengli saw the investment cost as too high. It said in April that it wanted to expand into the US, a "priority" target market, via the joint venture.

Chen said the US, being a mature market, was not a key target for Chu Kong.

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