Better than expected profit fuels rise in China Gas Holdings

PUBLISHED : Thursday, 27 June, 2013, 2:30pm
UPDATED : Thursday, 27 June, 2013, 3:48pm


China Gas Holdings share price jumped six per cent on Thursday morning after the company unveiled a better-than-expected annual profit.

The Shenzhen-based firm, which has exclusive gas distribution concessions in 172 mainland cities, on Wednesday posted an 84.9 per cent jump in net profit to HK$1.76 billion for year to March 31. That was 21 per cent higher than the HK$1.46 billion average estimate of 21 analysts polled by Thomson Reuters.

The company’s shares were up six per cent at HK$7.73 in the morning session on Thursday.

While rises in China’s natural gas prices were inevitable, the effect on industrial users, who make up the largest segment of the market, might not be as bad as first thought, the company said on Wednesday.

China Gas chairman Liu Minghui said gas would still be competitive compared to the alternatives.

Gas prices will certainly rise,” Liu told reporters at a briefing. “Amid the current adverse economic environment, many industrial users will feel some pain from the price hike. But that may be temporary, because as long as they are to develop their businesses, they will need more energy, and gas is still cheaper than oil and electricity.”

“Although coal is currently cheaper than gas, rising environmental protection costs mean that the total cost of burning coal will not be lower than gas in the future.”

The company’s sales rose 12.2 per cent to HK$21.25 billion, on the back of a 21.6 per cent jump in piped gas sales to 7 billion cubic metres (bcm), which was partially offset by a 0.5 per cent fall in liquefied petroleum gas (LPG) sales.

Piped gas contributed 44 per cent of total sales, compared to 37.5 per cent of LPG. Fees collected from housing developers to connect dwellings to its gas pipeline networks contributed 15.5 per cent.

Industrial users accounted for 67 per cent of its piped gas sales. Overall gross profit margin rose to 20.5 per cent from 19 per cent.

The firm is targeting piped gas sales to grow 21.4 per cent to 8.5 bcm in the 12 months to March 31 next year, and rise a further 17.6 per cent in the following 12 months to 10 bcm.

Together with potential partners, it plans to plough up to HK$6 billion by the end of 2018 to raise the number of gas refuelling points for vehicles from 172 currently to 1,000, as sales to the vehicle market are projected to overtake sales to households.

Analysts expect Beijing to lift heavily-subsidised gas prices by around 15 per cent annually between this year and 2015, as soaring losses from surging gas prices at state-owned PetroChina reach unsustainable levels. PetroChina is China’s largest gas producer and supplier.

Beijing is keen to expand gas usage to tackle worsening air pollution, but it has kept mainland gas end-user prices some 40 per cent lower than in Asian developed nations to shield end-users from the full brunt of rising costs.

Prior to the latest results, China Gas was projected by the analyst to post a net profit growth of 25 per cent in the 12 months to March 31 next year to HK$ 1.83 billion. A further growth of 18.3 per cent to HK$2.16 billion was forecast for the following financial year.