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Denise Tsang

Profitability is expected to remain flat until next year, when earnings will reflect apartment sales and China projects

Recognition of property sales is expected to return Hong Kong and China Gas (Towngas) to profit growth next year.

A company spokeswoman said yesterday that flat sales at its 50 per cent-owned residential project Grand Promenade in Sai Wan Ho would be reflected next year.  About half of the 2,002 apartments have  been sold.

'The project is expected to yield substantial returns,' Towngas said yesterday in a statement.

Most analysts  expect Towngas' profitability  to remain flat until next year. Some project that the company may choose to issue a special dividend reflecting property sales.

'There won't be any profit excitement until next year,' an analyst at an American brokerage said. 'The question is whether the company will distribute any part of its property gains as dividend payouts.'

An 81.5 per cent plunge in real-estate earnings to $38.7 million in the first  six months of this year saw net profits of the dominant gas supplier   decline by 2.2 per cent to $1.76 billion.

A Thomson First Call survey showed a consensus  forecast for full-year net profit of $3.18 billion  this year, up 4.56 per cent  from last year.

Despite a strong  recovery in the Hong Kong tourism sector from the Sars-plagued spring of last year, gas sales  increased by  a paltry 2 per cent  in the first six months of this year.

Gas sales growth was estimated  to be  unchanged this year at 2 per cent to 3 per cent, the spokeswoman said.

Turnover climbed 7.3 per cent to $4.26 billion despite frozen tariffs and slower growth  in consumer  numbers.

The number of new customers grew a weaker than expected 3.1 per cent, or 45,891, to 1.53 million   as the supply of new apartments declined.

To offset slowing growth in the mature Hong Kong market, Towngas is shifting its focus across the border, where it is aggressively expanding its portfolio of piped-gas supply projects.

The spokeswoman said the company expected to add four projects to its mainland operations, bringing the total number of projects north of the border to 32 by the end of the year.

She said the four projects involved supplying natural gas to the Bohai Rim region as well as Fujian.

The company's mainland gas projects generated earnings of $65.34 million in the first half, contributing 3.7 per cent to the group's overall net profit.

'By 2008, half of our revenue will come from the mainland market,' the spokeswoman said.

According to a CLSA research report, Towngas might float its mainland operations in the form of A shares on the Shanghai stock exchange as soon as 2007.

JP Morgan analyst Edmond Lee concurred.

'After all, the mainland market is very important to Towngas' future growth,' he said.

However, the Towngas spokeswoman seemed to dismiss the idea, saying the chance of this happening was remote.

Earnings per share eased 1.6 per cent to 31.3 cents. The interim dividend was unchanged at 12  cents  per share.

Towngas'  finances are sound with cash on hand of $300 million,  analysts said.

'It will be interesting to see if the company will spend part of its cash pile buying back shares to enhance earnings per share,' Mr Lee said.



Towngas looks to property, mainland