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Hong Kong & China Gas

Towngas pins growth hopes on China’s push for increased gas use

Gas firm misses forecasts with 2.7 per cent rise in 2015 net profit

PUBLISHED : Friday, 18 March, 2016, 7:50pm
UPDATED : Friday, 18 March, 2016, 7:57pm

Hong Kong and China Gas (Towngas), the city’s sole piped-gas supplier and a major city-gas distributor in mainland China, says government policies for natural gas to play a key role in reducing air pollution will continue to propel the firm’s growth as it posted a 2.7 per cent rise in annual profit.

Net profit for last year came to HK$7.3 billion, compared with HK$7.11 billion in 2014 and lower than the HK$7.43 billion average estimate of 12 analysts polled by Thomson Reuters.

Revenue fell 6.4 per cent to HK$29.6 billion due mainly to a 1.5 per cent fall in gas sales volume in Hong Kong and lower gas price on the mainland.

“Despite the various challenges resulting from the slowdown in economic growth on the mainland, the group has formulated, and is gradually implementing, development plans for different businesses in accordance with the energy and environmental policy of mainland China,” said chairman Lee Shau-kee in a filing to the Hong Kong stock exchange.

He said Beijing’s goal for the contribution from gas to the country’s energy consumption mix to rise to 10 per cent in 2020 from 6 per cent last year would create “huge market potential” for the firm.

A HK$358 million fall in adjusted earnings before interest, taxes, depreciation and amortisation from Towngas’ other energy businesses – including a Hong Kong aviation fuel supply operation and natural gas liquefaction business on the mainland – was mostly offset by a HK$217 million rise in ebitda from its mainland gas, water and related businesses. Ebitda in Hong Kong were steady.

Higher profit from its joint ventures and other firms in which it has no controlling stakes also helped lift its overall profit.

Towngas and its listed mainland subsidiary, Towngas China, together had 131 city-gas projects on the mainland, up from 127 a year earlier. Their combined gas sales rose 2 per cent over 2014 to 15.5 billion cubic metres.

Shares of Towngas China slipped 5.3 per cent to HK$4.25 on Friday after posting on Thursday a 23.4 per cent drop in net profit to HK$807 million for last year, a third less than analysts’ average estimate.

Excluding unrealised foreign-exchange loss due to the yuan’s devaluation and an asset writedown provision for the sale of a plant making coke, a steel-making ingredient, in northeast China, net profit would have been HK$1.2 billion, the firm said.

Gas sales volume grew only 1 per cent last year to 6.56 billion cubic metres, slowing from 10 per cent in 2014.

READ MORE: Hong Kong’s Towngas unfazed by weak mainland natural gas demand growth

Daiwa Capital Markets analysts said the weak result was mainly due to poor gas sales, with industrial volume down 5 per cent from 2014, but cited management as saying overall sales growth returned to “high-single-digit” percentages in the first two months of this year after a 28 per cent cut in average gas prices four months ago.

Previously, natural gas lost competitiveness to diesel after crude prices plunged while regulated domestic gas prices fell less.