corporate presentation april 2010. 2 table of contents sectionpage 1about china gas3 2operational...
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Corporate Presentation
April 2010
2
Table of contents
Section Page
1 About China Gas 3
2 Operational Highlights 1H FY2010 15
3 Financial Highlights 1H FY2010 22
4 FY2010-11 Guidance 27
5 Sector Outlook 29
About China Gas
4
Overview
Principal Business Segments
1. Natural Gas Services Operator: Engages in the investment, operation and management of city gas pipeline infrastructure, distribution of natural gas to residential, industrial and commercial users, and construction and operation of natural gas refilling stations
– Business started in 2002 when China decided to construct the West-East Pipeline
– Operates in 117 city concessions with 30-year monopolistic operating right each
– Possesses a pipeline network of more than 28,990 km serving approximately 4.2 million household users and nearly 30,983 industrial and commercial users
2. LPG Supplier: The only vertically-integrated LPG operator in PRC
– Entered into the LPG industry in September 2008
– Owns 11 LPG receiving terminals, 275,000 m3 of LPG storage capacity, upstream to downstream distribution network in PRC
Strategic cooperation agreement signed with PetroChina in both natural gas and LPG businesses in PRC
55
Natural gasBusiness model
Storage tanks(spherical or cylinder)
Natural gas fields
Assets owned by the Group:
Main pipelines
Branch pipelines
Pressure regulating boxes
Switches
Processing stations
* Customers’ pipelines which are not owned by the Group are within the customers’ premises and are not highlighted in this diagram.
City gate
Industrial users*
Residentialhouseholds*
Commercial users*Car refueling station
National or provincialpipelines
66
Natural gasRevenue model and pricing
2 main sources of revenue
– Gas connection: one-off payment mainly from residential users, less so from industrial and commercial users
– Sale of piped gas: recurring income at tariffs approved by the local governments
Exploration
Wellhead priceTransportation
Transmission tariffsDistribution
Distribution cost + margin
END-USER TARIFF COMPONENTS
Natural gas business operates on a cost-plus pricing model
NDRC Approval Local Price Bureau Approval
77
Natural gasProject development process
Bid & award Construction & development12-18 months
Operation30 years
About 15 - 20 projects under review
Investment criteria include:1. Project IRR > 15% 2. Industrial demand3. Natural gas accessibility
Revenue: Gas connection fees
Projects under development2007: 20 projects2008: 18 projects2009: 47 projects1H FY10: 34 projects
Revenue: Sales of piped gas
Projects in operation2007: 37 sites2008: 50 sites2009: 63 sites1H FY10: 80 sites
China Gas has a strong track record of developing city gas projects on time and on budget
88
Natural gasCurrent project locations
Beijing
Shanghai
Heilongjiang
Jilin
Liaoning
Inner Mongolia
Xinjiang
Tibet
Qinghai
Gansu
Ningxia
Shaanxi
Shanxi
Henan
ShandongHebei
Jiangsu
Anhui
Zhejiang
Fujian
JiangxiHunan
Guangdong TaiwanGuangxi
Hainan
Yunnan
Guizhou
Sichuan
Chongqing
Tianjin
Shaanxi Baoji, Qishan Xian, Yulin
Hebei Cangzhou, Cangzhou Economic Development Zone, Nanpi, Qinghe, Leting, Xinle, Gaocheng, Pingshan, Feng Nan, Neiqiu, Wangdu, Nanbao, Bohai New Area, Hebei Pipeline
Hubei Yichang, Xiaogan, Hanchuan, Yingcheng, Yunmeng, Suizhou, Tianmen, Guangshui, Dangyang, Xiaogan Pipeline, Dangyang Pipeline, Huanggang-Daye pipeline
Hunan Yiyang, Yuanjiang
Guangdong Maoming, Conghua, Meizhou, Yunfu, Shanwei
Guangxi Yuling, Qinzhou, Liuzhou, Fongchenggang, Laibin, Baise, Nanning Dongmeng Development Zone
Chongqing Dianjiang E&P, Yubei District, Dingwang purification, Chongqing Pipeline
Inner Mongolia Hohhot, Wushenqi, Wushenqi Pipeline, Changmeng Pipeline, Baotou, 4 counties, Etoke Banner
Ningxia Zhongwei
Fujian 28 city gas concessions
Jiangsu Pizhou, Yangzhong, Nanjing (Jiang Bei), Xuzhou (Jiawang), Xuzhou (Xinyi), Yangzhou
Anhui Wuhu, Huainan, Shouxian, Suzhou, Wuhuxian, Nanling, Huoshan, Fengtai , Wuwei
Zhejiang Hangzhou (Xiaoshan), Shaoxing, Taizhou, Jinhua
Liaoning Dalian, Fushun, Jinzhou, Sujiatun(Shenyang), Jinzhou D. Zone, Liaoyang, Gaizhou, Zhuanghe, Linghai, Pulandian
Shandong Dezhou, Qingdao
Tianjin Tianjin Pipeline
Heilongjiang Harbin, Jiamusi, Shuangcheng
Hubei
99
CNG refilling stations
CNG automobile development in the PRC is underpinned by the government’s determination to reduce emission and reliance on oil as the main source of vehicle fuel
China Gas currently owns 72 CNG refilling stations
– With daily capacity in excess of 1,200,000 m3
We aim to construct at least 120 CNG automobile filling stations by 2012
– Annual CNG sales volume is expected to reach 800 million m3
– Projected annual sales of approximately RMB 2.0 billion
1010
LPG
China Gas is the largest and only vertically integrated LPG supplier in the PRC covering retail and wholesale
Our LPG business covers:
– Upstream: Direct supply from refineries of PetroChina (28 refineries with total capacity of 6 million tons) and Sinopec; also import from the Middle East;
– Midstream: 11 receiving terminals, 275,000 m3 LPG storage facilities, fleets of vessels and trucks, and distribution logistics in Guangdong, Guangxi, Fujian, Zhejiang and Jiangsu;
– Downstream: Direct retail of bottled LPG to households.
Our vertically integrated LPG business provides a sustainable gross margin of 17%+
11
Oil Refinery
LPG Receiving Terminal
Class 3 Station
Bottling Station
Residential households
Class 2 Station
Assets owned by the
Group:
LPG vessels
LPG trucks
Trucks sending bottled LPG
Import/Domestic Supply
LPGBusiness model
Class 1 Station
Storage Facilities
Industrial users
Domestic supply
1212
LPGCurrent project locations
Guangdong Nansha Huakai Class I Storage with 50,000-ton terminal and storage capacity of 56,700m3
Shantou Class II Storage with 5,000-ton terminal and storage capacity of 3,020m3
Guangxi Fangcheng Class I Storage with 50,000-ton terminal and storage capacity of 49,000m3
Fujian Fuzhou Hengyuan Class II Storage with 1,000-ton floating pier and storage capacity of 1,700m3
Jingjiang Xiahua Class II Storage with 5,000-ton terminal and storage capacity of 2,020m3
Jiangsu Jingjiang Class I Storage with 50,000-ton terminal and storage capacity of 57,800m3
Zhejiang Haiyan Class I Storage with storage capacity of 4,400m3
Wenzhou Xiaomen Island Class I Storage with 50,000-ton terminal and storage capacity of 97,000m3 ; Leqing Transfer Station with storage capacity of 900m3 ; Yongjia Huadian Class II Storage with 1,000-ton floating pier and storage capacity of 1,000m3
Beijing
Shanghai
Heilongjiang
Jilin
Liaoning
Inner Mongolia
Xinjiang
Tibet
Qinghai
Gansu
Ningxia
Shaanxi
Shanxi
Henan
ShandongHebei
Jiangsu
Anhui
Zhejiang
Fujian
JiangxiHunan
Guangdong TaiwanGuangxi
Hainan
Yunnan
Guizhou
Sichuan
Chongqing
Tianjin
Hubei
Other LPG Assets- 35 Class III stations in the 5 coastal provinces - 96 retail shops- 8 LPG vessels- 450 LPG trucks
1313
Strategic partnerships
China Gas has joint venture with each of GAIL, Oman Oil and SK E&S to leverage on their technical knowhow and experience in their respective expertise
Each of GAIL, Oman Oil, SK E&S and ADB has senior person on the board of China Gas, providing valuable insights and advice from the international and diversified perspectives
Strategic shareholders have partnered and helped China Gas’ growth through the years
CHINA GAS
Management
SINOPEC
Strait Finance
GAIL
Oman Oil
ADB
Oman Fund Public
SK E&S
8.64% 6.30% 10.20% 6.30% 7.13% 4.50% 4.85% 4.98% 47.10%
14
China Gas entered into a strategic cooperation agreement with CNPC Kunlun Natural Gas (a wholly-owned subsidiary of PetroChina)
The two parties will co-operate in the following areas:
— LPG business: China Gas and CNPC Kunlun will jointly use Shanghai Zhongyou as the platform to carry out PRC LPG business; CNPC Kunlun has an annual LPG output of 6m tonnes
— Piped gas: Agreed for non-compete on existing projects. Preference will be given to each other in the development of long-distance pipelines and piped gas, and will jointly bid to secure new piped gas projects in large and medium cities
— Supply of LNG: CNPC Kunlun will give preference to China Gas for LNG supply
— Sharing of human resources, technology and branding
Cooperation agreement with PetroChina
2008 Gas Supply in China
Source: Macquarie Research
Total Annual Supply: 79 billion m3
Imports6%
PetroChina73%
Sinopec12%
CNOOC9%
Operational Highlights 1H FY2010
16
0
200
400
600
800
1000
1200
1400
1600
1800
1H08 1H09 1H10
Coal Gas & Piped LPG
Natural Gas
Natural gasSales volume
Tota
l sal
es v
olum
e (m
illio
n m
3 )
Period Sales Growth – Total
1H10 106.0%
1H09 110.9%
1H08 124.6%
Period Sales Growth – Natural Gas Only
1H10 101.8%
1H09 138.0%
1H08 117.3%66.7
746.8
313.8
380.5
802.3
1,652.5
55.5
145.5
1,507.0
17
Natural gasCustomer breakdown
0
200
400
600
800
1000
1200
1400
1600
1H08 1H09 1H10
CNG Stations
Commercial
Industrial
Residential
Nat
ural
gas
sal
es v
olum
e (m
illio
n m
3 )
44.7
191.135.842.2
105.7
497.1
66.577.5
Sector Sales Volume Growth in 1H10
% of Total Volume
CNG Stations
39.1% 7.2%
Commercial 118.6% 9.6%
Industrial 119.0% 72.2%
Residential 56.2% 11.0%
746.8
313.8
1,507.0
107.8
145.4
1,088.7
165.1
18
Natural gasCustomer data
Customer Growth Organic Acquired1H10
Portfolio TotalChange from
1H091H09
Portfolio Total
Residential 289,262 163,273 4,197,905 23.5% 3,399,100
Industrial 105 4 529 116.8% 244
Commercial 1,752 191 30,454 24.8% 24,402
CNG Stations 7 - 67 34.0% 50
Customer Tariffs (ex-tax) (RMB / m3) 1H10 Change from 1H09 1H09 1H08
Residential 1.84 1.1% 1.82 1.74
Industrial 2.03 4.1% 1.95 1.49
Commercial 2.31 14.4% 2.02 2.05
CNG Stations 2.14 -7.4% 2.31 1.98
19
LPG Operational data
1H10 FY09*
LPG Sales Volume (tons) 435,900 495,155
LPG Average Sales Income per ton (HKD) 4,010 4,589
Operational Location (Cities) 22 17
* The acquisition of the LPG business was completed in September 2008. Therefore, the FY09 figures above do not capture full year performance
20
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
1H08 1H09 1H10
CNG for AutomobilesCommercialIndustrialResidential
2,374.7
4,485.0
8,913.0
Other operational data
Natural gas daily consumption
(000
m3 )
18.40%
25.40%28.30%
20
25
30
35
40
45
50
55
1H08 1H09 1H100%
5%
10%
15%
20%
25%
30%
Penetration Rate (%
)
Urb
an P
opul
ation
Co
vere
d (m
)
Urban population covered and penetration rate
379.8
1413.7
291.5 496.5
3,075.5
437.040.7
44.0476.05,963.0
1,437.0
890.0
623.0
292.0
50.9
21
Other operational data
1H10 Change from 1H09 1H09 1H08
Residential Connection Fee (RMB per customer) 2,418 8.5% 2,228 2,368
Total Pipelines (km) 28,990 69.8% 17,073 14,483
Financial Highlights 1H FY2010
23
Financial summaryIncome Statement
HK$ ('000) 1H FY10 % change 1H FY09 (restated) 1H FY08
Turnover 3,937,292 138.7% 1,649,787 877,762
Gas Sales 1,577,112 51.7% 1,039,417 549,941
Connection Fees 559,269 35.4% 412,950 227,027
LPG Sales 1,748,104 - - -
Other 52,807 -73.3% 197,420 100,794
Gross Profit 934,031 68.9% 553,100 271,802
Profit after tax 490,778 338.2% 111,986 74,476
Profit Attributable to Shareholders 431,778 484.8% 73,836 64,711
Basic EPS (HK Cents) 12.95 483.3% 2.22 2.05
Gross Margin – Gas Sales 22.9% n/a 19.3% 13.6%
Gross Margin – Connection Fees 74.8% n/a 76.5% 80.0%
Gross Margin – LPG Sales 8.4% n/a - -
24
Income statementTurnover breakdown
Connection Fees
25.9%
Others11.5%
Sales of Piped Gas
62.7%
1H FY08 1H FY09 1H FY10
Connection Fees
25.0%
Others12.0%
Sales of Piped Gas
63.0%
Others1.3%
Connection Fees
14.2%
Sales of LPG44.4%
Sales of Piped Gas
40.1%
25
Financial summaryBalance sheet & debt position
HK$ ('000) 1H FY10 FY09
Total Assets 19,451,891 18,086,766
Total Equity 4,477,943 4,017,271
Shareholder's Equity 3,648,305 3,223,270
Cash 2,503,123 2,896,457
Short-term Bank Debt 3,102,667 * 3,103,855
Long-term Bank Debt 7,968,539 7,194,067
Convertible Bond 14,823 14,823
* Including HK$2,295,512,000 LPG Trading Facilities
26
Balance sheetGearing and debt maturity profile
Net Gearing at 148%1
Short-term debt primarily consists of trade financing from banks for the LPG trading business of Shanghai Zhongyou
Bank borrowings consist primarily of bank loans
Management is committed to prudent capital management, and a significant portion of the Group’s debt is long term
Debt Maturity Profile
Note 1): As at 30 September 2009Net Gearing = Net Debt Excluding LC Related Trading Facilities / Total Equity
FY2010-11 Guidance
28
FY2010-2011 guidance
Management will focus on organic growth of existing city gas and pipeline projectsNew investments will be on opportunistic basis
FY2010 FY2011
Gas volume (m3) 3.3 – 3.5 bn 4.5 – 5.0 bn
New residential connections 500,000 – 520,000 600,000 – 650,000
CNG stations to reach 90 – 100 120 – 130
LPG sales to reach 1.2–1.3m tons 2.0 – 2.2m tons
Sector Outlook
30
Coal69.5%
Crude Oil19.7%
Natural gas3.5%
Hydro/ others7.3%
Natural gas10.0%
Others90.0%
Coal66.1%
Crude Oil20.5%
Natural gas5.3%
Hydro/ others8.1%
Natural gas market
2007 2010 Forecast
Gas total = 69bn m3
Source: National Development and Reform Commission of China, China National Bureau of Statistics, Macquarie Research
Gas total = 120bn m3 Gas total = 280bn m3
2020 Forecast
31
LPG market
-
2
4
6
8
10
12
14
16
18
20
22
24
26
28
30
32
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Feedstock for Cracking
Industry
Commercial (Transportation and etc)
Residentail Gas
China LPG Demand by Sector
Mill
ion
tons
-8
-6
-4
-2
0
2
4
6
8
10
12
14
16
18
20
22
24
26
28
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
SupplyDemandNet Trade
China LPG Supply and Demand
Mill
ion
tons
Source: Company data
32
50
100
150
200
250
300
350
400
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
China
United States
G7 Average
32
Natural gas demand growth
China’s economic outperformance is expected to continue
Major volume and revenue growth drivers going forward:
– Increase in penetration rate: From 25% to 60% by 2014 – enhanced connection fee income
– More industrial connections: Previously constrained by limited supply of gas; waiting lists in cities will gradually be shortened
– CNG stations rollout: To build at least 120 new CNG stations in 30 cities by 2012
– Integration of LPG supply chain: To achieve the sale target of 3m tons of LPG sale by 2012
Real GDP vs. 2000 levels
Forecasts
Source: International Monetary Fund
3333
Natural gas supply growth
Growth made possible by:
– Additional gas supply from PetroChina as a result of the cooperation agreement
– Commissioning of new gas fields
– Xinjiang Province
– Inner Mongolia
– Sichuan Province
– Commissioning of new national pipelines
– Sichuan – East Pipeline
– West – East Pipeline II
– Import of piped gas from Central Asia, Russia and Myanmar
– Completion of additional LNG terminals
-
50
100
150
200
250
300
350
400
450
500
550
600
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030
LNG imports
Pipeline imports
Other imports
CNOOC
Sinopec
PetroChina
Billi
on m
3
Source: NDRC, Macquarie Research
China Natural Gas Supply Projection
3434
Natural gas pricing
Wellhead and retail prices are bound to hike because of new gas sources and imports
Expect an average of 8-10% increase per annum in the next 5 years
Natural gas pricing reform is expected to be implemented in early 2010
Pricing reform helps:
– Transparency and clarity of price adjustment mechanism
– Maintain price competitiveness of natural gas against alternative fuels
Cost pass-through mechanism will continue to function
– Pass on price adjustments to end-users
35
Disclaimer
Statements in this presentation and handout that are not strictly historical are “forward-looking” statements. Forward-looking statements involve risks and uncertainties, including, but not limited to, continued acceptance of the Company’s product and services in the marketplace, competitive factors, new products and technology changes, the Company’s dependence upon third party suppliers and other risks detailed from time to time in the presentation, handout and other related documents. China Gas is not responsible for the accuracy and completeness of the contents of such presentations and/or other documents. The materials and information in the presentations and other documents are for informational purposes only, and are not an offer or solicitation for the purchase or sale of any securities or financial instruments or to provide any investment service or investment advice.
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