Hong Kong company reporting season

Higher sales after gas price-cut boost ENN Energy’s interim profit

The Hebei province based natural gas distributor beats estimates with a 19 per cent increase in first-half profit

PUBLISHED : Tuesday, 23 August, 2016, 7:27pm
UPDATED : Tuesday, 23 August, 2016, 10:57pm

ENN Energy, one of China’s largest city natural gas distributors, reported a better-than-expected 19 per cent rise in underlying interim profit, lifted by a price cut-induced rebound in gas consumption.

Net profit for the first six months came to 1.59 billion yuan, or 1.3 yuan a share when accounting for the dilution impact of new shares issuance, up from 1.23 billion yuan and 1.13 yuan a share in the same period last year.

Excluding non-operating items such as accounting gains and losses arising from bonds convertible to shares, and foreign exchange fluctuations, ENN reported underlying recurring profit of 1.65 billion yuan, up 19 per cent from 1.39 billion yuan in the year-earlier period.

The figure was 2.5 per cent ahead of the 1.61 billion yuan average estimate by analysts at Citi, Deutsche Bank and Morgan Stanley.

No interim dividend was declared by the Langfang, Hebei province-based company controlled by mainland businessman Wang Yusuo, the same as last year.

The Group will continue to develop wholesale gas business and accelerate value-added businesses to diversify its revenue streams
ENN in a filing to the HK stock market

“On the back of its scalable logistics fleet resources and the capabilities of upstream [gas] resources procurement and downstream market [development], the Group will continue to develop wholesale gas business and accelerate value-added businesses to diversify its revenue streams,” ENN said in a filing to Hong Kong’s bourse after the market closed. The diversification includes electricity retailing.

First-half earnings before interest and taxes (ebit) on fees collected for connecting households to its pipeline networks grew 20.3 per cent year-on-year to 1.85 billion yuan, while those of piped gas sales rose 14.5 per cent to 1.63 billion yuan.

Ebit of vehicle gas refuelling dropped 23.8 per cent as it continued to face competition from cheaper but more pollution-prone diesel and gasoline motor fuel whose prices are closely linked to that of crude oil.

First-half revenue fell 1.6 per cent year-on-year to 15.64 billion yuan as a 28 per cent average non-residential regulated wholesale gas price cut by Beijing more than offset a 17.2 per cent rise in sales volume to 6.48 billion cubic metres (bcm) resulting from the price cut.

The increase in sales volume far exceeded the 10 per cent growth estimated by Morgan Stanley’s analysts, the growth of 11.5 per cent for the whole of last year and the 9.8 per cent first-half growth rate of national gas consumption.

Before the price cut, growth was slowed drastically by the economic slowdown and time lag in gas price reduction compared to competing fuels like crude oil-derived liquefied petroleum gas and coal, whose prices are less regulated.

ENN said in March it was targeting full-year gas sales growth of 15 per cent.

The firm’s North American vehicles natural gas refuelling business turned in a net loss of US$4.21 million (around 28 million yuan), an improvement on the 68 million yuan loss reported in the year-earlier period, helped by a government fuel tax refund policy and a policy equalising the excise tax with competing diesel fuel. It broke even on a cash flow basis, before accounting for depreciation and amortisation.

ENN shares Tuesday closed 1.6 per cent lower at HK$41.2 ahead of the results announcement. They are almost flat year-to-date, underperforming the Hang Seng Index’s 4.9 per cent gain.