Hong Kong company reporting season

PetroChina’s Kunlun Energy unit posts better than expected 4pc increase in profit in first half

PUBLISHED : Friday, 19 August, 2016, 8:32am
UPDATED : Friday, 19 August, 2016, 8:32am

Kunlun Energy, the natural gas distribution unit of oil and gas giant PetroChina, posted a better than expected interim profit increase, which was boosted by inclusion of the newly acquired city gas distribution unit Kunlun Gas from its parent.

Net profit for the year’s first-half amounted to HK$2.89 billion, up 4 per cent year-on-year. The year-earlier period profit was restated from HK$1.92 billion to HK$2.78 billion to include the effect of the acquisition that was completed in June this year, to enable a meaningful year-on-year comparison.

Net profit was 8.3 per cent higher than the HK$2.67 billion estimate by analysts at Sanford Bernstein.

No interim dividend was declared, consistent with the firm’s practise in previous years.

“In the second half of the year, the situation of oversupply in the international oil and gas market would continue, the growth of domestic demand for natural gas would slow down, and the market competition would further intensify,” Kunlun Energy said in a filing to Hong Kong’s exchange on Friday morning. “The group will actively respond to these challenges.”

First-half net loss from the oil and gas production segment widened to HK$223 million, from a loss of HK$133 million in the year-earlier period, as low oil prices continued to trouble its mostly overseas production assets.

Natural gas marketing and liquefied natural gas processing net profit surged 33.2 per cent year-on-year to HK$1.01 billion, thanks the acquisition of Kunlun Gas on June 22, which Sanford Bernstein senior analyst Neil Beveridge estimated to have boosted the firm’s profit by some 30 per cent.

The acquisition also saw Kunlun Energy diversify into liquefied petroleum gas (LPG) distribution for the first time.

Net profit from the operation of liquefied natural gas (LNG) import and processing terminals fell 22.2 per cent year-on-year to HK$112 million, as the gasification volume of the firm’s terminals in Jiangsu and Liaoning provinces fell 13.9 per cent year-on-year to 1.91 billion cubic metres.

In the natural gas pipeline segment, the firm saw net profit rise 4 per cent year-on-year to HK$2.09 billion, thanks to a 5.6 per cent increase in transmission volume to 17.57 billion cubic metres.

Kunlun’s shares closed 2 per cent lower on Thursday at HK$5.93, as investors reacted to news that Beijing issued on Wednesday a consultation paper on reforming the way the nation’s gas pipeline transmission tariffs are set.

The circular said tariffs will be set based on an “allowed costs-plus-reasonable return+tax” principal, so that pipeline operators’ return on assets will be capped at no more than 8 per cent.

Beveridge said this would hit Kunlun Energy hard, as some 60 per cent of its earnings comes from its pipeline operation, and it currently enjoys a return on assets of almost 19 per cent.

He expected its average pipeline tariff to fall from 0.33 yuan per cubic metre this year to 0.25 yuan next year and 0.21 yuan in 2018.