Hong Kong company reporting season

Kunlun Energy posts 13.9pc core interim profit growth in first half

Shares of Kunlun Energy plunged more than 5 pc in Hong Kong on Thursday, as investors reacted to an interim results announcement on Wednesday

PUBLISHED : Thursday, 24 August, 2017, 10:43am
UPDATED : Thursday, 24 August, 2017, 10:37pm

Kunlun Energy, the natural gas distribution unit of the nation’s largest oil and gas producer PetroChina, reported a better than expected 13.9 per cent core interim profit growth on strong gas sales and processing volume.

The state-backed company, which also owns overseas oil production assets besides its core operation of gas logistics and distribution, had a net profit of 2.42 billion yuan (US$363.5 million) during the first half, little changed from 2.41 billion yuan in the same period last year, it said in a filing to Hong Kong’s bourse on Wednesday.

But when the effect of a 100 million yuan impairment loss on a gas liquefaction plant in Guangdong and a 329 million yuan impairment on accounts receivables are excluded, core net profit amounted to 2.74 billion yuan. .

Kunlun’s Hong Kong-listed shares were down 5.2 per cent to HK$7.15 in mid-morning trading on Thursday.

“The profit was above our estimates on better than expected volume growth,” wrote Sanford Bernstein senior analyst Neil Beveridge in a note.

He said Kunlun’s 19 per cent gas sales growth to 8.8 billion cubic metres in the year’s first half was ahead of the industry’s average of 15 per cent.

“With the effective implementation of China’s air pollution control action plan and [rising] supply of heat [with] natural gas as fuel in northern China ... gas consumption increased significantly,” Kunlun said.

First half revenue grew 19.1 per cent year on year to 40 billion yuan.

Kunlun’s biggest profit driver, natural gas pipeline transmission, saw core net profit rise 9 per cent year on year to 1.91 billion yuan, thanks to a 14.8 per cent rise in transmission volume.

But the bread and butter operation is expected to see lower profitability going forward as part of Beijing’s gas price reform to lower energy costs for users.

“We expect a cut in midstream tariff will weigh on profits from the year’s second half onwards,” Beveridge said. “Although the company did not disclose any further details the tariff cut [in the filing], we estimate that the tariff will fall by 30 per cent from 0.33 yuan per cubic metre to 0.23 yuan in the second half.”

First half core net profit from liquefied imported gas processing terminals jumped 233 per cent year on year to 313 million yuan as processing volume surged 71 per cent.

Gas liquefaction and sales saw core profit fall 39.4 per cent to 505 million yuan, while oil and gas production turned in a first half profit of 161 million yuan from a loss of 188 million yuan in the year earlier period on the back of a 56 per cent rise in the oil price.

Beveridge noted that the gas sales margin fell as a result of greater sales to industrial and rural users at discounts, while gas liquefaction remained a loss making industry with plant utilisation of only 40 to 50 per cent.

Kunlun shares on Tuesday closed 1.2 per cent higher at HK$7.54. They have gained 30 per cent year to date, outpacing the Hang Seng Index’s 24.6 per cent rise.