Henan-based natural gas distributor China Tian Lun Gas Holdings plans to raise up to HK$409 million in an initial public offering for the expansion of its pipeline networks, build gas-processing facilities and acquire new projects. It has 30- or 50-year concessions to run gas distribution ventures in Hebi and Xuchang cities, as well as Shangjie district in Zhengzhou city, the capital of Henan province. Earnings from one-off pipeline connection fees accounted for just over half of its total revenue in the first half of this year, on which it had a gross profit margin of 71.4 per cent. It had 136,645 users at the end of June. Transportation and sales of piped gas contributed up to 44 per cent of China Tian Lun's income for the first half but this business only earned the company a gross profit margin of 12.4 per cent. The company posted a net profit of 32.44 million yuan (HK$37.75 million) in the first half, up 68.7 per cent year on year. Profit was 44.3 million yuan last year, 23.5 million yuan in 2008 and 7.54 million yuan in 2007. CLSA analyst Charles Yonts said the company's heavy reliance on high-margin connection fees was not sustainable in the long run as the fees might be abolished and that it needed to expand its network's scale to boost bargaining power in gas sourcing. China Tian Lun warned in its listing prospectus that gas-supply shortage is one of the risks it faces, as supply volume is allocated by the provincial government. It was once forced to buy gas from an alternative supplier at a higher price as its long-term supplier was unable to provide additional quantities of gas, it said. The company is offering 199.5 million shares at HK$1.52 to HK$2.05 each. The offer to retail investors will open today. Listing of its shares is expected on November 10.