China Tian Lun Gas unveils 1.3b yuan budget for 2H expansion

Henan-based distributor sees long-distance pipeline construction as a “key plank” of its investment strategy

PUBLISHED : Thursday, 01 September, 2016, 5:35pm
UPDATED : Thursday, 01 September, 2016, 10:42pm

China Tian Lun Gas, a Zhengzhou, Henan province-based natural gas distributor, plans to spend almost 1.3 billion yuan to build up its city-gas distribution projects and clinch more long-distance pipeline investment deals in the second half of the year.

“Participating in long-distance pipeline construction is a key plank of our development strategy, as it will help us secure projects in more cities,” deputy general manager Feng Yi told reporters on Thursday.

He said the 8 per cent return-on-assets cap recently proposed by Beijing for long-distance gas pipelines - lower than existing levels - is still decent given the strategic value of pipelines to the firm. The cap is designed to provide a standardised and transparent industry pricing system and help lower gas prices.

The National Development and Reform Commission, China’s anti-monopoly regulator, Wednesday posted a circular on its website, ordering local governments to review gas transmission and distribution prices as well as profit margins, with an objective of cutting “overly high” prices in some regions to help reduce the energy costs of corporate users.

The move triggered share price declines of 5 to 10 percent among Hong Kong-listed gas distributors.

Feng sought to play down fears the move would deal a major blow to the listed distributors’ profits, saying the policy targets primarily unlisted, local government-owned pipelines whose profit margins are too high because of a lack of competition.

He said Tian Lun is seeking opportunities to build sub-pipelines for three main inter-regional pipelines. One is the third West-East Gas Pipeline linking northwest China to southern China.

Another links provinces in the southeast, and a third, in the northeast will transport gas to be imported from East Siberia in Russia.

The company has three operating long-distance pipelines in Jilin, Henan and Jiangsu provinces with combined annual transmission capacity of 5 billion cubic metres. It is building another one linking Henan to Jiangxi province.

Tian Lun, which operated 52 city-gas projects, 44 vehicle gas refilling stations and two plants that convert natural gas into a liquefied form for easier transport at the end of June, is a latecomer to the industry relative to its more established rivals listed in Hong Kong.

Still, like ENN Energy and China Gas, it has received funding from the International Finance Corp (IFC), a member of the World Bank that focuses on financing private sector development in emerging markets. The IFC owns 11 per cent of Tian Lun.

Tian Lun on Wednesday posted a 10.2 per cent annual rise in net profit to 151 million yuan for the first half of 2016.

Excluding foreign exchange fluctuations, mainly from the slump in the value of the yuan, underlying net profit has risen 28.6 per cent to 171 million yuan, thanks to higher gas demand and project acquisitions.

Around 45 per cent of the 55 million yuan year-on-year increase in gross profit was contributed by Beijing Huiji Group, acquired by Tian Lun in April last year for 860 million yuan. Beijing Huiji operates in Henan, Jiangsu and Fujian provinces.

[Pipeline construction] will help us secure projects in more cities
Feng Yi, deputy general manager, Tian Lun

Tian Lun’s first-half revenue grew 30.2 per cent to 1.29 billion yuan, on the back of a 77.8 per cent jump in gas sales to 0.44 billion cubic metres (bcm), partially offset by Beijing’s 28 per cent average price cut to regulated non-residential wholesale gas prices in November.

Feng said the firm’s management is targeting gas sales volume growth of at least 40 per cent in the next three years.

Fees charged to connect customers’ premises to its pipeline networks grew 6 per cent year-on-year to 288.4 million yuan.

Tian Lun has 15 city-gas projects in Henan province, 10 in Jilin, seven in Yunnan and four in Guangdong. The rest are scattered in Shandong, Gansu, Guangxi, Hunan, Fujian, Shaanxi, Sichuan and Hubei.

The company spent 601 million yuan in the year’s first half to buy 85 to 100 per cent stakes in three gas distributors in Nanyang in Henan province, Chengdu in Sichuan province and Lechang in Guangdong. These acquisitions contributed 65.8 million yuan of revenue and 15.94 million yuan of net profit in the January to June period.

Tian Lun also paid 191 million yuan in May for a 36 per cent stake in a project firm in Jilin province, from a company controlled by chairman Zhang Yingcen, raising its stake to 87 per cent.

The firm has declared its maiden dividend since going public in Hong Kong in 2010, with a payout of 8.3 HK cents per share for the year’s first-half, amounting to around 25 per cent of last year’s profit. Feng said the firm plans to stick to this payout ratio in the future.

China Tian Lun shares Wednesday closed 4.5 per cent higher at HK$6.9. They have risen 0.9 per cent year-to-date, underperforming the Hang Seng Index’s 5.7 per cent gain amid investors’ concerns over natural gas’s competitiveness versus coal and oil-derived alternatives.