China Gas sets lofty sales goals as rural homes switch from coal for winter heating

The Shenzhen-based distributor of natural gas in cities saw operating profit jump 18.5pc to HK$6.13 billion in year to March 31

PUBLISHED : Wednesday, 21 June, 2017, 5:44pm
UPDATED : Wednesday, 21 June, 2017, 10:59pm

China Gas has unveiled ambitious sales targets for the next three years after posting a better-than-expected 82.5 per cent jump in annual profit, banking on growth in the nascent market of winter heating in rural villages.

The market is attractive since villages will receive state subsidies to help them convert from primitive direct coal-burners to natural gas heaters, executive chairman Liu Minghui said after the firm posted the profit rise that was helped by lower one-off losses including those stemming from depreciation in the yuan.

“We have been conducting trials to develop this market for several years, and have signed agreements with nine cities in the Beijing-Tianjin-Hebei region to do coal-to-gas conversion in villages not in jurisdictions already served by operators with distribution concessions,” he told reporters.

Net profit of the Shenzhen-based firm came to HK$4.15 billion in the 12 months to March 31, up from HK$2.27 billion in the year-earlier period, according to a filing to the Hong Kong stock exchange after the market close on Wednesday.

The growth was higher than its own prediction of a gain of about 70 per cent announced early this month.

The company, a natural city-gas distribution unit of municipal government conglomerate Beijing Enterprises, reported growth in turnover of 8.5 per cent year-on-year to HK$32 billion.

Earnings before interest and taxes climbed 17.2 per cent HK$7.9 billion.

A final dividend of 20 HK cents per share was proposed, raising the full-year total to 25 cents, up from 19.5 cents a year earlier.

In the previous financial year, the firm booked HK$1.44 billion of one-off or non-operational items, including HK$728 million of accounting losses and extra refinancing costs related to the yuan’s depreciation against the US dollar.

It also made provisions for litigation over a share option involving former directors, and for the closure of two chemical projects.

The firm had 330 piped city-gas projects across mainland China at the end of March, up from 305 a year earlier.

Retail gas sales volume increased 16.2 per cent to 8.5 billion cubic metres (bcm), higher than its target of 13 per cent, revised down in November last year from 20 per cent indicated a year ago.

China Gas aims to boost growth to above 30 per cent in the 12 months to March 31 next year, and over 25 per cent in each of the following two financial years.

Wholesale volume surged 46.2 per cent to 3.75 bcm in the previous financial year. The company expects this to slow to 30 per cent in the 12 months to March 31 next year.

“The winter heating market in rural villages is huge because gas consumption of rural households amounts to ten times that of urban families whose heating needs are served by waste heat from power plants rather than gas distribution,” Liu said. “In cities, families only use city gas for showers and cooking.”

In Hebei province, each rural dwelling will receive 6,700 yuan from the state to buy and install gas heaters, and up to 1,200 yuan annually to help with their gas bills, he noted.

Analysts from Daiwa Capital Markets forecast in a report last month that China Gas would sign up 500,000 to 700,000 new rural customers in the 12 months to March 31, 2019, contributing 2 to 4 per cent of its net profit that year.

Mainland China’s gas consumption grew 12 per cent in the first four months of 2017, up from 6.6 per cent in the whole of last year, on the back of faster industrial activities and a drive by local governments to replace pollution-prone coal with gas.

Beijing is targeting domestic gas demand to grow by an average annual rate of 11.8 per cent between last year and 2020.

Rating agency Fitch’s analysts said in a note in April that they expect large city-gas distributors to achieve sales volume growth of “low-to-mid teen” percentages in the medium term, maintaining their track record of growth outpacing the national average.

China Gas shares closed 0.5 per cent higher at HK$13 on Wednesday. They have gained 23.6 per cent since the start of the year, outperforming the Hang Seng Index’s 16.8 per cent rise.