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Hong Kong company reporting season

Hong Kong’s Towngas posts better than expected HK$4.33 billion interim profit

PUBLISHED : Monday, 22 August, 2016, 5:53pm
UPDATED : Monday, 22 August, 2016, 10:46pm

Hong Kong and China Gas (Towngas), Hong Kong’s sole piped-gas supplier and one of the largest city-gas distributors on the Chinese mainland, has warned of short-term growth risk on the mainland after unveiling a better than expected interim profit.

“Given the mainland’s economic growth momentum is notably slowing … growth in gas sales of the group’s mainland city-gas businesses is weakening,” chairman Lee Shau-kee, one of Hong Kong’s richest tycoons, said in a statement to Hong Kong’s exchange after the market closed.

“Coupled with the exchange [rate] risk arising from the [yuan’s] devaluation, overall profit growth of the group’s mainland businesses faces challenges in the near term.”

But Lee stressed that rapid urbanisation, Beijing’s policies encouraging the adoption of cleaner-burning natural gas, expanding gas supply and transmission capacity will ensure long term gas demand growth.

Net profit for the first six months amounted to HK$4.33 billion, or 34.1 HK cents per share, compared to HK$4.2 billion or 33 cents per share in the year-earlier period.

The latest figure was 1.2 per cent higher than the HK$4.28 billion average estimate by analysts at Citi and Morgan Stanley.

Coupled with the exchange [rate] risk arising from the [yuan’s] devaluation, overall profit growth of the group’s mainland businesses faces challenges in the near term
Lee Shau-kee, Towngas chairman

An interim dividend of 12 HK cents per share was declared, the same as last year.

For the full year, the firm is forecast to post a 0.5 per cent rise in net profit to HK$7.34 billion, according to the average of 10 analysts polled by Thomson Reuters.

First-half revenue fell 4.1 per cent year on year to HK$13.92 billion, on the back of Beijing’s 28 per cent cut to regulated non-residential wholesale prices in November.

This was largely offset by an 8.6 per cent increase in gas sold on the mainland to 8.63 billion cubic metres (bcm), boosted by the price cut.

The sales volume growth rate is slightly below the 10 per cent estimated by Pierre Lau, Citi’s head of Asia utilities research.

Gas sold in Hong Kong edged up 1.8 per cent to 15.77 billion mega-joule as lower first-half temperature boosted gas sales. The gas tariff was increased by 3.5 per cent a year ago.

A 29 per cent fall in adjusted earnings before interest, taxes, depreciation and amortisation from Towngas’ other energy businesses to HK$288.4 million was more than offset by an 8.8 per cent increase in ebitda from its Hong Kong gas, water and related businesses to HK$2.58 billion, as well as a 6 per cent ebitda rise in the same businesses in mainland China to HK$2.4 billion.

Among its other energy businesses, an oil production project in Thailand reported a 29 per cent year-on-year drop in first-half output, causing “a significant impact of the project’s recent profits”, the company said.

Its coalbed methane gas liquefaction facility in Shanxi province was also challenged by low liquefied natural gas prices, while its coal-to-methanol production plant in the Inner Mongolia autonomous region was hurt by sinking prices of methanol and petrol, which are linked to crude oil prices, it added.

The firm did not disclose individual realised profits of these operations, but its oil production business and methanol-to-petrol business were expected by Morgan Stanley’s analysts to “at most break even” due to low oil prices.

Towngas’ share price closed 0.8 per cent higher on Monday at HK$14.58. The stock has fallen 4.1 per cent year to date, underperforming the Hang Seng Index’s 4.9 per cent gain.