Growth Enterprise Market-listed Xinao Gas (Holdings) posted a 112.1 per cent year-on-year surge in net profit last year, in probably its last annual results announcement before moving to the Hong Kong main board. The mainland natural-gas distributor's net profit was 79.26 million yuan (about HK$74.28 million) as turnover soared 96.7 per cent to 240.56 million yuan. However, both rates of increase signal a slowdown from the stunning pace of growth recorded in 2000, the year before the counter's listing on the second board in May, when its turnover rose 131 per cent and net profits increased 147 per cent. Xinao's gross profit growth, however, accelerated to 124 per cent last year, up from 117 per cent in 2000. The firm did not declare a dividend, despite a 60.7 per cent boost to earnings per share to 14.3 fen, citing the need to retain profits to fund expansion. General manager Yang Yu said: 'We will instead reward shareholders through capital appreciation.' Decades-long exclusive supply contracts are a norm in the mainland gas distribution sector. Sensing intensifying competition, Xinao has adopted a fast expansion strategy to capture market share. The company aimed to expand its population coverage from 3.28 million at the end of last year to 10 million by 2005, with the addition of six to eight sites annually up to 2004, Mr Yang said. Each project is expected to require capital expenditure of 50 million to 200 million yuan. Mr Yang estimated Xinao's capital expenditure this year to hit 500 million yuan, including continued funding for 16 projects and expansion to six to eight new locations. Those are to be partly financed by retained earnings and cash. But financial director Yu Jianchao did not rule out bank borrowing or further stock-market fund-raising. Last year, the company had cash reserves of about 180 million. The expansionary strategy has taken a toll on Xinao's penetration of its existing markets. It connected only 9.8 per cent of the residential households under its coverage last year, down from the previous year's 17.2 per cent. Heavier capital expenses, administrative overheads and labour costs as a result of the expansion, coupled with costs of stock-market fund-raising, sheared the company's earnings before interest, tax, depreciation and amortisation from 1999's 62.1 per cent of turnover to last year's 51 per cent. Vice-general manager Jin Yongsheng said Xinao probably would be listed on the main board in May or June, pending approval from the Hong Kong Exchanges and Clearing and the GEM board.
