Steel pipe maker Chu Kong sees return to profit after three years in the red

PUBLISHED : Thursday, 06 April, 2017, 7:00am
UPDATED : Thursday, 06 April, 2017, 7:00am

Chu Kong Petroleum and Natural Gas Steel Pipe is optimistic of returning to profit in 2017 as it expects a downturn in the industry to bottom out this year and rebound next year.

One of China’s largest producers of steel pipes for the oil and gas sector, Chu Kong on Friday unveiled its third consecutive annual underlying net loss, amounting to 883 million yuan last year.

When including fixed assets impairment due to low plant utilisation, write-downs on the value of inventory and accounts receivables, the net loss came to 1.5 billion yuan. Sales dived 43 per cent to 1.4 billion yuan.

In 2015, it suffered a pre-tax loss of 484 million yuan, when an investment property fair-value accounting gain was excluded, compared to a loss of 452 million yuan in 2014 on the same basis.

The Panyu, Guangzhou-based firm is majority controlled by chairman Chen Chang.

His daughter, executive director Lilian Chen Zhaonian, blamed the dismal results on construction delays in China’s oil and gas pipeline projects caused by slumping oil and gas prices. An anti-corruption drive that saw the departure of many senior executives of the nation’s state-backed oil giants also had an impact.

“But we expect our industry cycle to see a bottom this year, followed by a significant rebound from next year,” she told reporters, pointing to Beijing’s recently announced plans to build 7,000km of oil pipelines and 40,000km of gas pipelines in the five years to 2020.

She said China Petroleum & Chemical (Sinopec) had indicated potential steel pipe demand of 600,000 tonnes this year, which would be allocated to four qualified suppliers. Chu Kong is ranked the second highest on the preferred suppliers list.

Beijing was well short of reaching its national pipeline targets for 2015. Only 8,000 km of crude and refined oil pipelines were added in the five years to 2015, compared with a planned 29,400 km, while 21,400 km of natural gas pipelines were built against a target of 40,000km.

Chu Kong had 180,000 tonnes of uncompleted orders as of March, of which two thirds come from overseas and the rest from China. It delivered 340,000 tonnes last year.

A US$200 million, 300,000 tonne-a-year joint venture production line in Saudi Arabia is pending quality certification by oil giant Saudi Aramco, a would-be customer. Commercial production is pending the result.

Lilian Chen said the firm’s bottom line this year will be helped by the booking of flats and villas sold at a large-scale property development at a site at its Panyu headquarters.

Some 920 apartments and 26 villas in the first phase of the development had been pre-sold for a total of around 739 million yuan. They will be booked in its accounts once they are delivered to buyers.

Chu Kong surged 6.8 per cent on Wednesday to HK$1.1. It has gained 3.8 per cent since the start of the year, compared to a 10.9 per cent rise of the Hang Seng Index.