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Corporate Presentation
December 2009
2
Table of contents
23FY2010/11 guidance4
PageSection
18Financial performance FY07-093
Operational performance FY07-09
About China Gas
12
4
2
1
25Demand growth outlook5
27Natural gas pricing outlook6
About China Gas
4
Overview
Principal Businesses
1. Natural gas services operator: Principally engaged in the investment, operation and management of city gas pipeline infrastructure, distribution of natural gas to residential and industrial users, construction and operation of natural gas refilling stations; started this business in 2002 when China decided to build the West-East Pipeline
– Operates in 113 city concessions with 30-year monopolistic operating right each
– Has a pipeline network of more than 27,000 km serving around 4.1 million household users and nearly 30,000 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
Have strategic cooperation with PetroChina in both the natural gas and LPG businesses in China
5
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
6
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
FINAL TARIFF COMPONENTS
NDRC approval Local price bureau approval
Natural gas business operates on a cost-plus pricing model
7
Natural gasProject development process
Bid & award Construction & development12-18 months
Operation30 years
About 15 projects under review
Investment criteria include:1. Project IRR > 15% 2. Industrial demand3. Natural gas accessibility
Revenues: Gas connection fees
Projects under development2007: 20 projects2008: 18 projects2009: 47 projects
Revenues: Sales of piped gas
Projects in operation2007: 37 sites2008: 50 sites2009: 66 sites
China Gas has a strong track record of developing city gas projects on time and on budget
8
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, 5 counties
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, Wafangdian, Pulandian
Shandong Dezhou, Qingdao
Tianjin Tianjin Pipeline
Heilongjiang Harbin, Jiamusi, Shuangcheng
Hubei
9
Liquefied petroleum gas
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 PetroChina’s 28 refineries (total capacity 6m tons); 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+%
10
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%
Operational performance
FY07-09
12
Gas volume growth
357.71,043.5
2,130.3
74.5
105.3
195.6
0
500
1,000
1,500
2,000
2,500
FY07 FY08 FY09
Mill
ion
M3
Natural gas Coal gas & piped LPG
2,325.9
1,148.8
432.2
13
Natural gasCustomer breakdown
62.0 150.7 276.7
669.5
1,463.3117.8
221.9
105.5
168.4
357.7
1,043.5
2,130.3
239.7 33.222.7
0
500
1,000
1,500
2,000
2,500
FY07 FY08 FY09
Residential Industrial Commercial CNG Stations
mill
ion
m3
14
Natural gasCustomer growth
No. of end users
Portfolio total New connections
FY2007 FY2008 FY2009 FY2008 FY2009
Residential 1,349,782 2,253,044 3,745,370 280,230 418,695
Industrial 111 185 420 56 186
Commercial 10,451 19,325 28,511 1,852 2,616
CNG Stations 21 45 60 24 15
15
Natural gasAverage tariffs (RMB/m3) (ex-tax)
Type of end user FY2007 FY2008 FY2009
Residential 1.75 1.75 1.85
Industrial 1.66 1.84 1.97
Commercial 2.31 1.85 2.06
CNG stations 2.23 1.95 2.08
16
Other operational data
FY2007 Growth % FY2008 Growth % FY2009
Total Daily NG Consumption (m3) 1,618,160 142.9% 3,931,089 74.4% 6,855,126
Total Pipelines (km) 9,843 64.8% 16,217 59.5% 25,866
Urban Population Covered 32,008,000 33.7% 42,801,000 18.1% 50,550,000
Penetration Rate 16.5% 20.6% 24.7%
Average Connection Fees 2,092 9.7% 2,295 6.2% 2,437
Financial performance
FY07-09
18
Financial summaryIncome statement
FY2007 FY2008
FY2009
HK$ (‘000) (restated) (restated) Natural Gas LPG Total
Turnover 1,236,469 2,552,075 4,051,650 2,272,173 6,323,823
Gas Sales 750,101 1,691,159 2,678,377 2,272,173 4,950,550
Connection Fees 387,243 615,282 1,127,403 1,127,403
Other Sales 99,125 245,634 245,870 245,870
Gross Profit 419,764 746,119 1,300,204 129,145 1,429,349
EBITDA 406,474 817,325 1,215,699
EBIT 307,045 620,006 869,100
Profit after Tax 236,249 187,571* 133,959**
Profit Att’ble to shareholders 200,789 141,059* 103,679**
Basic EPS (HK Cents) 6.70 4.39* 3.11*** after a HK$167m non-cash impairment due to convertible bonds issued in June 2005
** after a HK$366m non-cash impairment due to interest rate swap contracts
19
Financial summaryBalance sheet & debt position
HK$ (‘000) FY2007 FY2008 FY2009
Total assets 7,308,847 11,306,127 18,086,766
including Construction in progress 922,124 1,399,851 1,950,637
Total equity 2,692,805 3,686,006 4,017,271
Cash 1,512,347 1,674,641 2,896,457
Short term bank debt 686,781 157,061 3,103,855*
Long term bank debt 2,242,452 5,624,454 7,194,067
* Of which HK$2,669m comes from the LPG subsidiary, about 84% of it was 30-90 day Letter of Credit financing for its LPG import business
20
Connec-tion Fees
31.3%
Sales of Piped Gas
60.7%
Sales of Others8.0%
Sales of LPG0.0%
Connec-tion Fees
24.1%
Sales of Piped Gas
66.3%
Sales of Others9.6%
Sales of LPG0.0%
Connec-tion Fees
17.8%
Sales of Piped Gas
42.4%
Sales of Others3.9%
Sales of LPG
35.9%
Income statementTurnover breakdown
FY2007 FY2008 FY2009
21
Balance sheetDebt maturity profile
Short-term debt of the Group primarily consists of trade financing from banks for the LPG trading business
Bank borrowings consist primarily of bank loans
Management is committed to prudent capital management, and currently most of Group’s debt is long term
Debt Maturity Profile
FY2010/11 guidance
23
FY2010~2011 guidance
Management will focus on organic growth of existing city gas and pipeline projects.New 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 1.3m tons 2.0 – 2.2 m tons
Demand growth outlook
25
Demand growth outlook
Major volume and revenue growth drivers FY10-12:
– 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
Growth made possible by:
– Commissioning of new gas fields and national pipelines
– Import of piped gas from Central Asia
– Completion of more LNG terminals
Natural gas pricing outlook
27
Natural gas pricing outlook
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 end of 2009 or 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 work to pass on price adjustments to users
28
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.