Monday, November 30, 2020
 
Columnist
Martin Hennecke
 
ZHONGYU GAS
HKEx Stock Code : 03633 
 
Corporate Profile
Principally engaged in the development, construction and operation of natural gas and coalbed gas projects in the PRC. In addition, the Company will transfer the listing from GEM to the Main Board of the Stock Exchange of Hong Kong. Dealings will commence on 11 July 2012.

Business Review - For the year ended December 31, 2012

Downstream Piped Gas Distribution

Nanjing Jingqiao Project

On 8th October, 2012, 鄭州東信鋁業有限公司 Zhengzhou Dongxin Aluminum Company Limited (“Zhengzhou Dongxin”) as transferor, and Zhongyu (Henan) Energy Holdings Limited (“Zhongyu Henan”), a wholly owned subsidiary of the Company, as transferee, entered into the equity transfer agreement pursuant to which Zhengzhou Dongxin agreed to transfer to Zhongyu Henan 100% of the equity interest in 南京晶橋能源投資管理有限公司 Nanjing Jingqiao Energy Investment Management Company Limited (“Nanjing Jingqiao”) held by it.

After completion of the transactions contemplated under the equity transfer agreement, Zhongyu Henan will own the entire equity interest in Nanjing Jingqiao.

Nanjing Jingqiao was established in 2010 in Nanjing, the PRC with limited liability. It is principally engaged in the business of constructing natural gas reserves and related pipeline infrastructure projects in Jingqiao Town, Nanjing, the PRC. Nanjing Jingqiao obtained the concession right from local authorities of Nanjing, the PRC, to operate the sales and distribution of natural gas and compressed natural gas filling stations in Jingqiao Town, Nanjing, the PRC. The concession right is for a period of 30 years and has been granted for exclusive operations since 21st June, 2010.

Jingqiao Town is a major industrial town in Nanjing, Jiangsu Province, the PRC. The total area and population of the town is 150 square kilometers and 44,000 respectively. The industry sector in Jingqiao Town has developed rapidly and its comprehensive economic strength keeps growing. There are 170 industrial enterprises in town with industrial output value of 2.52 billion yuan.

The Directors are of the view that the transaction will enhance the earning base and enlarge the geographical coverage of the Group. To the best of the Directors' knowledge, information and belief having made all reasonable enquiry, Zhengzhou Dongxin and its ultimate beneficial owners are third parties independent of the Company and its connected persons.

The consideration of RMB130 million (equivalent to approximately HK$160 million) was determined after arm's length negotiation between the parties to the equity transfer agreement with reference to the potential economic benefit of Nanjing Jingqiao bring into the Group and its business prospects.

RMB10 million (equivalent to approximately HK$12 million) was paid by Zhongyu Henan to Zhengzhou Dongxin on the date of the equity transfer agreement. The balance of RMB120 million (equivalent to approximately HK$148 million) is paid within 60 days from the date of completion of the transaction. The consideration paid under the equity transfer agreement was funded by internal resources and bank borrowings.

As all of the applicable percentage ratios in respect of the transaction were less than 5%, the transaction did not constitute a discloseable transaction of the Company under the Listing Rules and no announcement was made in this respect.

Shaowu City Project

On 12th December, 2012, 鄭州泰浦商貿有限公司 Zhengzhou Taipu Shangmao Company Limited (“Zhengzhou Taipu”) as transferor, and Zhongyu (Henan) Energy Holdings Limited (“Zhongyu Henan”), a wholly owned subsidiary of the Company, as transferee, entered into the equity transfer agreement pursuant to which Zhengzhou Taipu agreed to transfer to Zhongyu Henan 100% of the equity interest in 上海宣閩能源投資管理有限公司 Shanghai Xuanmin Energy Investment Management Company Limited (“Shanghai Xuanmin”) held by it.

Shanghai Xuanmin, which is wholly owned by Zhengzhou Taipu, was established on 12th November, 2012 in the PRC. It is an investment holding company and has no other business save for the holding of 100% equity interests in 邵武市宣燃天然氣有限公司 Shaowu City Xuanran Natural Gas Company Limited (“Shaowu City Xuanran”). Shaowu City Xuanran was established on 5th September, 2011 and obtained the concession right to operate the sales and distribution of natural gas in Shaowu City, the PRC. The concession right is for a period of 30 years and has been granted for exclusive operations since 1st January, 2009.

After completion of the transactions contemplated under the equity transfer agreement, Zhongyu Henan will own the entire equity interest in Shanghai Xuanmin and Shaowu City Xuanran.

Shaowu City is a major industrial town in Minbei region, Fujian Province, the PRC. The total area and population of the town is 2,852 square kilometers and 300,000 respectively. The industry sector in Shaowu City has developed rapidly and its comprehensive economic strength keeps growing. There are over 170 sizeable industrial enterprises in city and the total output value in Shaowu City is 14.6 billion yuan.

The Directors are of the view that the transaction will enhance the earning base and enlarge the geographical coverage of the Group. To the best of the Directors' knowledge, information and belief having made all reasonable enquiry, Zhengzhou Taipu and its ultimate beneficial owners are third parties independent of the Company and its connected persons.

The consideration of RMB145 million (equivalent to approximately HK$180 million) was determined after arm's length negotiation between the parties to the equity transfer agreement with reference to the potential economic benefit of Shaowu City Xuanran bring into the Group and its business prospects.

RMB10 million (equivalent to approximately HK$12 million) was paid by Zhongyu Henan to Zhengzhou Taipu on the date of the equity transfer agreement. The balance of RMB135 million (equivalent to approximately HK$168 million) is paid within 30 days from the date of completion of the transaction. The consideration paid under the equity transfer agreement was funded by internal resources and bank borrowings.

As all of the applicable percentage ratios in respect of the transaction were less than 5%, the transaction did not constitute a discloseable transaction of the Company under the Listing Rules and no announcement was made in this respect.

Wuyishan Project

Reference is made to the Annual Report 2011 of the Company dated 21st March, 2012 in which the Company mentioned that Zhongyu Henan, a wholly-owned subsidiary of the Company, entered into an agreement (the “Capital Injection Agreement”) on 4th November, 2011 with 鄭州大田投資有限公司 (Zhengzhou Datian Investment Company Limited) (“Zhengzhou Datian”), 葉建斌 (“Ye Jianbin”) and 卓雲震 (“Zhuo Yunzhen”), in respect of the proposed injection of registered capital into 武夷山市中閩天然氣有限公司 (Wuyishan City Zhong Min Natural Gas Company Limited) (“Wuyishan Zhong Min”) by Zhongyu Henan. Immediately after completion of the Capital Injection Agreement, Wuyishan Zhong Min became an indirect non wholly-owned subsidiary of the Company. Wuyishan Zhong Min bid to obtain an exclusive right granted by the Peoples' Government of Wuyishan City to engage in the construction and operation of piped natural gas projects in Wuyishan City. Wuyishan Zhong Min has been approved by the local government as an eligible candidate. As at the date of this announcement, the local government is carrying out overall urban and city gas planning. After such planning is finished, Wuyishan Zhong Min plans to submit a bid to the local government for that project in 2013. The Group will continue to update investors on the latest progress.

Second West-East Gas Pipeline Project

The main pipeline of second West-East Gas Pipeline has been completed and commenced gas supply in July 2011 . As a result, piped gas supply for the Group's project located in the following cities described below has increased significantly, enabling the Group to connect with more end users, increasing the Group's turnover and in turn, enhancing its earning base.

The supply of piped natural gas to Sanmenxia City from the second West-East Gas Pipeline commenced in July 2011 respectively. This has greatly increased the sales of piped gas to Sanmenxia City.

The connection and supply of gas to Yanshi City from the sub-pipeline of second West-East Gas Pipeline was completed and commenced supply in late of October 2012. Moreover, in order to match the upstream connection, we expect the connection and supply of piped natural gas to Xinmi City from the sub-pipeline of second West-East Gas Pipeline will be completed and commence in the second half of 2013. After supply commences, the Directors believe that the sales of piped gas to Yanshi City and Xinmi City will increase greatly.

Price Link Mechanism

In addition, the Group obtained the Notice on Problems Relating to the Piped Natural Gas Prices in Henan Province(關於河南省管道天然氣價格有關問題的通知) (the “Notice”) issued by Henan Province Development and Reform Commission on 9th December, 2011 . Pursuant to the Notice, a price link mechanism between the upstream and selling prices of natural gas for residential users (the “Price Link Mechanism”) was established. As a result, the selling price of natural gas for residential users of the Group's subsidiaries in Jiaozuo City, Luohe City and Jiyuan City increased during the year.

Major Operational Data

The downstream natural gas distribution business of the Group primarily comprises sales of piped gas, gas pipeline construction and sales of natural gas from CNG filling stations for vehicles.

Upstream CBM Exploration

With the aim to ensuring sufficient and cost-effective gas supply for the Group's downstream gas projects located in Henan Province, the PRC and enhancing the Group's profitability, the Group tapped into the upper stream CBM supply market in the PRC in 2007.

As at 31st December, 2012, the Group secured eight coal blocks, situated at Jiaozuo, Zhengzhou, Pingdingshan (including Yuzhou and Ruzhou), Hebi, Yima, Yongxia, Henan Province, the PRC to explore, exploit, develop and produce CBM. The Group will continue to update investors on the latest exploration progress.

Business Outlook - For the year ended December 31, 2012

The Group is confident in its future prospects as the steady growth of the natural gas market in the PRC is expected to be maintained. The favorable domestic business environment and the growing demand for piped gas consumption arising from progressing urbanization and increasing consumption of automobiles will also serve to drive growth. In the future, the Group will expand its downstream natural gas distribution with a focus on high margin commercial and industrial users and gas refueling stations, with the goal of increasing its penetration rate in the areas it is currently operating in.

The stable supply of piped natural gas to Yanshi City, Henan Province, the PRC from the second West- East Gas Pipeline commenced in late of October 2012. As a result, piped gas supply for the Group's project located in the Yanshi City will increase greatly, which will facilitate the Group to connect with more end users, increase the Group's turnover and in turn, enhance its earning base in the near future.

Under the 12th Five-year Plan (2011 -2015) of the PRC, it is expected that the annual domestic gas consumption will reach 260 billion cubic meters (cu m), representing an 8.3 percent share in the primary energy mix in 2015. Currently, gas demand in the PRC reaches approximately 100 billion cubic metres a year. The implementation of beneficial policies by the State and progressing urbanization in China will continuously boost the domestic gas demand and support the steady expansion of the Group's overall business.

In addition to its vertical integration strategies, the Group is cautiously seeking suitable investment opportunities. With our healthy financial position, together with the constant cash inflow generated by our downstream projects, we believe that we would be able to strategically increase our market penetration. We believe that Zhongyu Gas is well-positioned to capture the opportunities arising from the economic development in the PRC and maximize our shareholders' returns.

Source: Zhongyu Gas (03633) Annual Results Announcement
Chairman Wang Wenliang Issued Capital (shares) 2,524M
Par Value HKD 0.01 Market Capitalisation (HKD) 5,023M
 
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