CRG clears the air on riskier ventures

City-gas distributor China Resources Gas Group (CRG), whose proposed merger with sister firm China Resources Power Holdings (CRP) was rejected by the latter's shareholders last month, says it has no plan to enter the riskier upstream gas business.

"Now that the merger plan has fallen through, we will focus all our efforts on city-gas distribution and our original strategy. We will not consider investing in projects like shale gas and coal-to-gas conversion projects," chairman Wang Chuandong said.

His comments cleared uncertainty about CRG's strategy, since expansion into the exploration and production of hard-to-extract natural gas adhered tightly between coal seams and shale rocks, as well as gas liquefaction facilities, were part of the business plan of China Resources Energy, the proposed merged entity.

When the merger was proposed in May, CRP and CRG said by combining their resources, they would be in a better position to take on the riskier projects and create a vertically integrated energy major.

But CRP shareholders late last month voted against the all-share merger with CRG. Analysts had expected the proposal to collapse given a lack of detail about the new ventures post-merger to ease concerns about their uncertain profitability.

CRG's gas distribution and CRP's power generation businesses are mature and returns are relatively certain.

Wang made the comment after CRP posted a 41 per cent year-on-year rise in profit for the year's first half to 1.07 billion yuan (HK$1.34 billion). It is 11 per cent higher than the average estimate of 963.7 million yuan of three analysts in a Bloomberg poll.

First-half turnover grew 76 per cent year on year to 9.8 billion yuan, driven by a 47 per cent jump in gas sales volume to 6.25 billion cubic metres (bcm).

General manager Shi Shanbo said two-thirds of the first-half's profit growth was driven by its own projects and the rest by newly acquired ones.

CRG grew its number of projects from seven in 2008 to 151 last year, and gas sales from 1.37 bcm to 9.27 bcm last year largely by acquiring projects from its parent China Resources (Holdings).

The company aims to double that to 20 bcm by 2015.

After Beijing raised manufacturers' non-residential gas selling price by an average of 15 per cent, Shi said CRP has been able to pass on the rises to users on 80 per cent of its targeted sales for this year, so that its average yuan profit margin per unit of gas sold remains steady.

An interim dividend of 2 HK cents was proposed, matching that in last year's first half. Chief financial officer Ken Ong Thiam Kin said CRG planned to raise its dividend after 2015, above the current ratio of 20 per cent of net profit.