China Gas pricing change results in extra dividend

Investors will get an interim dividend now and the company plans to raise its total annual payout ratio to about 30 per cent of net profit

PUBLISHED : Thursday, 29 November, 2012, 12:00am
UPDATED : Thursday, 29 November, 2012, 3:46am


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China Gas, which has endured in-fighting among top management and a prolonged battle against hostile takeover bids in the past two years, declared its maiden interim dividend since its establishment a decade ago.

The Shenzhen-based firm, the mainland's largest city natural gas distributor by number of projects, posted a 116 per cent jump in interim profit.

It plans to continue paying interim dividends and aims to gradually raise its annual payout ratio to about 30 per cent. It paid a dividend amounting to 13.5 per cent of its net profit in 2010, and 18 per cent last year. An interim dividend of 2.2 HK cents has been recommended by the board.

China Gas reported a net profit of HK$808.2 million in the six months to September 30. Revenue grew 8.3 per cent to HK$8.57 billion year on year, mostly due to a 27.6 per cent rise in piped gas sales to 3.05 billion cubic metres.

The average selling price to industrial customers, which accounted for 72 per cent of total sales, rose 10.3 per cent.

Overall gross profit margin was 22.2 per cent, up from 20.5 per cent in the same period last year. Deputy managing director Eric Leung Wing-cheong attributed the increase to higher margins at its liquefied petroleum gas distribution business and its Zhongyu Gas associate.

The higher margins came from a change in the distribution agreement with its suppliers so that China Gas makes a fixed dollar margin on each unit of LPG sold, to avoid price risk. Previously, it bought and sold LPG at market prices.

It lost 1.5 per cent in sales because of the change, although gross margin rose to 5.5 per cent from 4.5 per cent.

However, its LPG business reported an operating loss of HK$13.34 million in the period, compared with a profit of HK$47.7 million a year earlier.

This is because of costs incurred in expanding its retail distribution network, the full revenue generation effect of which has not yet been seen.

Gross profit from connecting households to its pipeline fell to 68.3 per cent from 71.4 per cent as it connected more older buildings than new ones amid a prolonged campaign by Beijing to suppress property speculation.

It is costlier to connect older buildings. Gas sales margin was flat at 19 per cent.

Reinstated managing director Liu Minghui - speaking at a news conference for the first time since his arrest and subsequent release by Shenzhen police - said China Gas will continue to expand its number of city gas projects, without giving a target.

He had been held on embezzlement allegations but police said there was a lack of evidence against him.

Liu said there has been progress in talks on business co-operation with shareholder China Petroleum & Chemical (Sinopec), which had launched a US$2.2 billion hostile bid with Xinao Gas to take over China Gas.

Some analysts played down the likelihood of any significant co-operation in LPG distribution, saying the business was unattractive. They suspect the proposals may be a face-saving exercise after hostile takeover attempts by Sinopec and ENN failed.

But Liu said it would be normal for former takeover bidders to become the firm's partners.