Hong Kong & China Gas Co. Ltd. · HKEX:3

Hong Kong & China Gas — The Hong Kong & China Gas — FY2016 Earnings Presentation

65 slides from Hong Kong & China Gas's earnings presentation, March 2017

  1. Slide 1: Hong Kong & China Gas Co. Ltd. group structure

    The Hong Kong & China Gas Co. Ltd. (3 HK) incorporated Towngas China Co. Ltd. (1083 HK) Hong Kong Mainland Core Utilities Corporate New Energy & Telecom

  2. Slide 2: 2

    2

  3. Slide 3: 2016 Final Results Overview

    2016 FINAL RESULTS OVERVIEW 3

  4. Slide 4: 2016 results highlights

    2016 2015 • Revenue: HK$28.6Bn HK$29.6Bn • Profit Attributable HK$7.34Bn HK$7.30Bn to Shareholders: • Operation: HK$6.15Bn HK$6.13Bn • IFC Revaluation: HK$1.19Bn HK$1.17Bn • Earnings Per Share: HK 57.7 cents HK 57.4 cents • Dividends: HK 35 cents HK 35 cents • Bonus Shares: 1 for 10 1 for 10 4

  5. Slide 5: Hong Kong operating environment

    • Visitors from the Mainland declined • Hotel occupancy dropped • Restaurants business held steady • Extreme low oil price affected industrial gas sales in 1Q • Average ambient temperature slightly favorable • Inflation stayed low • Employment rate remained high • Housing supply increasing 5

  6. Slide 6: Mainland China operating environment

    • Weak export & industrial output • Low oil and LNG prices • Sluggish high end consumption market • Continuous RMB depreciation • PNG city-gate price reduction • Favourable clean energy policies • Energy & commodities demand recovering • New housing construction picking up • Inflation stayed low • E

  7. Slide 7: Export Value (YoY%)

    Export Value (YoY%) 35% 31.3% 30% 25% 20.3% 20% 15% 10% 7.9% 7.9% 6.1% 5% 0% -5% -2.8% -10% -7.7% 2010 2011 2012 2013 2014 2015 2016 7

  8. Slide 8: Brent Spot Price

    USD/Barrel Brent Spot Price FOB 140 120 2014 : USD99/bbl 100 80 2017 Mar: 2015: USD51/bbl 60 USD52/bbl 40 2016: USD44/bbl 20 0 2014 2015 2016 2017 8 Source: http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=rbrte&f=d

  9. Slide 9: RMB/USD

    RMB/USD 7.0 31 Dec 2016: 6.937 2016 -6.5% 31 Dec 2015: 6.486 6.5 2015 -4.4% 31 Dec 2014: 6.201 6.0 2014 2015 2016 2017 9

  10. Slide 10: Electricity and NG consumption growth

    Electricity Consumption Growth(YoY%) 15% 11.7% 10% 7.5% 5.5% 5.0% 5% 3.8% 0.5% 0% 2011 2012 2013 2014 2015 2016 25% NG Consumption Growth (YoY%) 21.0% 20% 15% 13.0% 12.9% 10% 6.6% 5.6% 5.7% 5% 0% 2011 2012 2013 2014 2015 2016 10

  11. Slide 11: New Housing Construction (YoY%)

    50% 40.7% New Housing Construction (YoY%) 40% 30% 20% 16.2% 13.5% 10% 8.1% 0% -10% -7.3% -10.7% -20% -14.0% 2010 2011 2012 2013 2014 2015 2016 11

  12. Slide 12: Consumer Price Index

    Consumer Price Index 6% 5.4% 5% 4% 3.3% 3% 2.6% 2.6% 2.0% 2.1% 2% 1.4% 1% 0% 2010 2011 2012 2013 2014 2015 2016 12

  13. Slide 13: GDP Growth

    10% GDP Growth 9.2% 9% 8% 7.8% 7.7% 7.4% 6.9% 6.7% 7% 6% 5% 2011 2012 2013 2014 2015 2016 13

  14. Slide 14: Business structure and New Energy

    New Energy (NE) • City-gas • City-gas • Energy Infrastructure (0003.hk + 1083.hk) • Renewables/Recycling • Mid Stream • Unconventional Fuels • Gas Storage • Clean Transportation • Clean Transportation Fuels Fuels • Bandwidth + Data Centre • Water Supply/Sewage/ Bio-waste Treatment 14

  15. Slide 15: FY2016 Operating Profit After Tax by Businesses

    (HKD) FY2016 Operating Profit After Tax By Businesses New Energy (NE) 2.9Bn 3.4Bn 0.3Bn OPAT 6.6Bn * In Original Currency (Rmb) 15

  16. Slide 16: Hong Kong utilities strategy: market penetration

    New project availability limited Retain large industrial users Deepen gas market penetration  Space heating  Clothes drying  Distributed energy centres (CHP) Ensure winter-load can be met 16

  17. Slide 17: Hong Kong utilities strategy: services and safety

    Innovate product/services expansion  Appliances  Kitchen solution  Insurance policy Ensure gas safety Improve service quality Raise productivity; contain costs 17

  18. Slide 18: Mainland project map up to 28 Feb 2017

    Heilongjiang Jilin Liaoning Beijing Inner Mongolia Hebei Shanxi Ningxia Henan Anhui Shaanxi City-gas Midstream Hubei Sichuan Water, Sewage & Chongqing Zhejiang Waste Treatment Refilling Stations Hunan Gas-based Jiangxi Coal-based Guizhou Fujian Biomass Guangdong Oil E&P Thailand Guangxi Telecommunic

  19. Slide 19: New Energy & Telecom

    NEW ENERGY & TELECOM 19

  20. Slide 20: New energy products

    Bio-diesel / LNG Ethylene Glycol Carbon Materials Methanol 20

  21. Slide 21: Conversion routes for chemicals and fuels

    • Biomass → Chemicals • Coal Tar Oil → Carbon Materials • Methanol → Ethanol • Powder Coal → Tar oil / Semi-coke • Syngas → Chemicals 21

  22. Slide 22: New energy plants and capacities

    COG to LNG COG to LNG, XuZhou Biomass to Chemicals, ZhangJiaGang Capacity: 80K tons LNG Capacity: 200K tons Chemicals Biomass to Chemicals, TangShan Sync gas to Ethylene Glycol, IM Capacity: 20K tons Chemicals Capacity: 120k tons EG

  23. Slide 23: In-house technology and R&D

    • Focus on in-house technology development • Innovation / R&D Centres for technology development • Successfully swing away from crude price sensitive products 23

  24. Slide 24: Internet Plus: data centres

    • Internet Plus (Big Data Era) Harbin  To be a major HK/Mainland networked data centre service provider Dalian  Six data centres as a country- Optical Fiber wide backbone established Network Jinan Backbone  Well positioned to capture secured data storage, Shanghai processing and transmission mark

  25. Slide 25: Data centre capacity and occupancy

    Ultimate Capacity 14,350 racks Installed Capacity ~5,000 racks Occupancy Rate PAT ~60% HK$77Mn 25

  26. Slide 26: Utilities: Hong Kong & Mainland China

    Utilities Hong Kong & Mainland China 26

  27. Slide 27: Hong Kong town gas business

    Profit After Tax HK$2.9Bn 6.7% Town Gas Total Household Penetration Coverage Sales Customers 28,814TJ 1.86Mn 74% 86% 1.4% 20,153 • Fuel cost variation fully pass through 27

  28. Slide 28: Nethersole Hospital CHP and SENT landfill gas

    Nethersole Hospital CHP System SENT Landfill Gas Facilities • Commissioned in Dec 2016 • To be commissioned in Jun 2017 • First kind in Hong Kong • Town gas feedstock sharing: 3% • Thermal efficiency: 80%+ • Carbon emission: -20% 28

  29. Slide 29: Hong Kong new business projects

    • Absorption chiller applications (250TJ) – Disneyland, Ocean Park, data centers • Diesel to gas conversion projects (60TJ) – Hospitals, hotels, food processing factories • New projects (200TJ) – HKJC, children hospital, laundry plants, West Kowloon Cultural District 29

  30. Slide 30: Mainland utilities financial results

    Revenue Profit from project Companies 9%* Profit Attributable to Shareholders Dividend per Share * in Original Currency (Rmb) 30

  31. Slide 31: Towngas China operating statistics

    2016 Change Gas volume 7.1Bn m³ 8.5% Total customers 10.9Mn 0.9Mn New connections 1.1Mn 5% Refilling station volume 231Mn m³ 6.6% Number of city-gas projects 97 31

  32. Slide 32: Operating profit after tax, TCCL inclusive

    (TCCL inclusive) Operating Profit HKCG Group After Tax City-gas Water Midstream 10.3% 5.0% 3.7% Volume: 17.1Bn m³ 455Mn ton 3.2Bn m³ Total projects: 131 7 8 * in Original Currency (RMB) 32

  33. Slide 33: City-gas and water customers

    (TCCL inclusive) City-gas Water HKCG Group HKCG Group 2.2Mn 74,395 Total Customers: 23.1Mn 1.2Mn New Connections: 3% 2.1Mn 1% Refilling Station Volume: 321Mn m³ Number of Refilling Stations: 109 33

  34. Slide 34: Gas market reform and pricing

    ► Towards a more structured & market oriented industry ► Open up upstream & downstream (price flexibility); regulate midstream ► Seasonal gas pricing  Back to pre-November 2016 in mid-March 2017  Possible reduction in summer 34

  35. Slide 35: Gas sales volume 2016 vs 2015

    2016 vs 2015 19% 18 26% Residential 10.3% 2016 Industrial 17.1 Volume Mix 15.5 16 Commercial 15.2 Gas Sales Volume (Bn m3) 14 55% 13.4 11.9 12 10.3 10 8.5 8 6.9 5.8 6 4.6 4 2.1 2 1.4 0.8 0.02 0.08 0.3 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 35

  36. Slide 36: Energy policy and urbanization targets

    ► Energy mix targets by 2020  Target to lower coal to 58% (from 64% in 2015)  Natural gas target reaching 10% (from 6% in 2015) ► Promote clean space heating in the northern region  Replacement of using coal: >3 million households  Shut down all small coal-fired boilers at prefectural-level citi

  37. Slide 37: Industrial and commercial sector gas conversion

    Industrial Sector Coal-to-Gas Conversion 2015 2016 JVs with government subsidies & supporting 54 94 policy Converted Customer 1,010 1,380 Capacity 4,460 8,073 (Steam tons) Annualised NG Demand 580 1,050 (Mn m³/p.a.) Commercial Sector 2015 2016 Newly Acquired 10,000 12,000 Customer Annualised NG Dema

  38. Slide 38: CHP, space heating and clothes dryer potential

    ► 20 CHP potential projects  NG consumption: 500Mn m³ p.a. ► Domestic space heating system  Market potential: >100,000 units p.a.  10X gas consumption  100Mn m³ p.a. ► Gas Clothes Dryer  Market potential: >20,000 units p.a.  +30 to 50% gas consumption 38

  39. Slide 39: Water business: food waste treatment

    Market Development (MU) Water Business — Food Waste Treatment > Suzhou Industrial Park > Capacity: 500tons/day > By-products: Natural Gas Bio fuel Total investment: Rmb220Mn Target commissioning date: (2Q2018) Target IRR: ~15% vvvyvysyY Two potential projects under negotiation 39

  40. Slide 40: New projects added up to Feb 2017

    Up to 28 Feb 2017 Heilongjiang 5 projects added, total projects in 24 provincial regions Jilin Liaoning New Projects Beijing Other 1. Shanghai Petroleum and Natural Gas Inner Mongolia Exchange Hebei 2. Sichuan Distributed Energy System Shandong 3. Hua Yan Environmental Industry Shaanxi Development (

  41. Slide 41: 2016 Financial Overview

    2016 FINANCIAL OVERVIEW 41

  42. Slide 42: HKCG balance sheet and ratios

    HKCG (003 HK) FY16 FY16 HK$ Bn Total assets 116.7 Current ratio 108% Net asset value 62.9 Interest coverage 9.4x Cash and Bank 11.5 A Return on Equity 14% Total borrowings 33.2 Gearing (net) 27.9% Market cap 190.0 Credit A+ Ratings A1 42

  43. Slide 43: Revenue and EBITDA by business

    HK Core Mainland Utilities New Energy 2016 2015 2016 2015 2016 2015 Revenue 9.0 8.8 16.7 18.0 2.1 2.1 (HK$Bn) EBITDA 4.5 (HK$Bn) 4.3 4.6 4.5 0.6 0.7 EBITDA (%) 49.9% 48.1% 27.7% 25.1% 30.7% 33.1% Revenue 43

  44. Slide 44: TCCL balance sheet and ratios

    TCCL (1083 HK) FY16 FY16 HK$ Bn HK$ Bn Total assets 28.0 P/B 0.9x Net asset value 14.7 P/E 12.7x A Market cap 12.0 Gearing (net) 31.7% Cash & bank 1.6 BBB+ Credit Total borrowings 7.8 Ratings Baa1 44

  45. Slide 45: RMB exchange rate impact

    RMB rates 2016 2015 Closing rate -6.5% -4.4% Average rate -5.5% -1.9% HKCG (HK$M) Operating Profit (195) (70) Foreign currencies net debts (88) (385) TCCL (HK$M) Operating Profit (80) (27) Foreign currencies net debts (90) (301) 45

  46. Slide 46: CNY/USD bank forecasts

    2017 Yr End 2016 Yr End 10 Feb 2017 CNY / USD Citibank 7.05 31/12/2016 7.00 6.937 Standard Chartered 7.06 6.95 ANZ 7.10 6.90 JP Morgan 7.10 6.85 depreciate Nomura 7.15 6.80 6.5% Mizuho 7.17 6.75 HSBC 7.20 6.70 31/12/2015 6.65 6.486 Morgan Stanley 7.30 2017 Forecast Depreciate 6.60 Credit Suisse 7.32

  47. Slide 47: Savings from off-shore debt re-financing

    After Maintain (HKD Mn) Re-financing Off-shore Debts +/- Off-shore 237 153 +84 interest expenses Average interest cost 3% 2% Exchange Loss 90 518 -428 Total 327 671 -344 Saving 47

  48. Slide 48: USD/CNH and CNH deposits pool

    CNH Deposits USD/CNH (in RMB Bn) 1,200 7.2 02/03/2017 6.885 7 1,000 6.8 800 6.6 6.4 600 6.2 400 6 USD/CNH 5.8 200 CNH Deposits Pool 5.6 0 5.4 02/10 02/11 02/12 02/13 02/14 02/15 02/16 02/17 48

  49. Slide 49: CNH 1Y HIBOR, USD/CNH and deposits

    CNH Deposits 02/03/2017 USD/CNH (in RMB Bn) 6.885 1,200 7.2 7 1,000 5.5% 6.8 800 CNH 1Y HIBOR 6.6 2.0% 6.4 600 6.2 400 6 USD/CNH 5.8 200 CNH Deposits Pool 5.6 0 5.4 02/10 02/11 02/12 02/13 02/14 02/15 02/16 02/17 49

  50. Slide 50: CNH HIBOR and off-shore debt funding cost

    CNH HIBOR Tenor Fixing Rate ON 2.76532 Off-shore Debt 1W 5.62050 Funding Cost 2W 5.59050 1M 5.23167 2M 5.20067 2016: 3% 3M 5.18617 2017: ~ 4-5% 6M 5.26200 1Y 5.41033 Historic data (22 Feb 2017) 50

  51. Slide 51: Listed gas company holdings

    64.15% 25.23% 26.48% 20.61% Changchun Gas Shenzhen Gas Anhui Province (601139.ch) NG Dev. (600333.ch) (603689.ch) 2017-Jan 51 Listed

  52. Slide 52: Spin-off strategies

    Strategies  Full support to spinning off  Business development  Corporate governance  Transparency 64.15% 2017/2H 25.23% 26.48% 20.61% Changchun Gas Shenzhen Gas Anhui Province Company A Company B (601139.ch) NG Dev. (600333.ch) (603689.ch) 52

  53. Slide 53: Dividend, EPS and pay-out ratio

    HKCG TCCL (0003 HK) (1083 HK) Dividend (HK cents) 35.00 12.00 EPS (HK cents) 57.72 36.26 Pay-out Ratio 60 % 33 % Bonus Issue 1 for 10 - 53

  54. Slide 54: Dividend and bonus share history

    20 18 16 14 12 SARS / Deflation Financial Crisis 10 8 6 4 2 - '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 Bonus Share (1 for 10) Bonus Warrant 54

  55. Slide 55: Profit trend (HK$ Bn)

    (HK$ Bn) 2.1 2.2 2.2 2.0 1.4 1.2 1.1 1.0 0.3 0.2 0.1 0.0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 55

  56. Slide 56: Cash inflow, outflow and balance

    (HKD Bn) Group Operation 13 PRC Dividends Distribution 7 Inflow 20 Cash on Hand 12 Fund available for investment 32 Dividend 14 Outflow HK Capex 3 PRC Investments 10 27 Cash Balance 5 56

  57. Slide 57: Outlook

    OUTLOOK OUTLOOK 57

  58. Slide 58: China carbon commitments and natural gas share

     China’s Commitments on Carbon Emission Intensity Reduction  2020: ↘ 40 ~ 45%  2030: ↘ 60 ~ 65% (Emission amount capped)  Smog Issue Accelerates the Use of Cleaner Fuels  13-5 Plan: Natural Gas Share  2015: 6% 193bcm  2020: 10% 360bcm CAGR: 6.3%  2030: 15% (projection) 480bcm 58

  59. Slide 59: 13-5 Plan natural gas consumption growth

     13-5 Plan Natural Gas Key Consumption Growth bcm p.a.  Coal-to-gas conversion (boilers, furnaces) +45  Distributed energy centres (CHP) +60  Urbanization +27  Transportation fuel (land & marine) +25 +157  Abundant Supply; Sufficient Infrastructures  Indigenous PNG  Imported PNG  Imported L

  60. Slide 60: Utilities opportunities and regulatory regime

     Utilities Opportunities  4 to 6 new city-gas projects p.a.  Gas sales volume growth at mid-teen rate  Market Regulatory Regime  Open up up-stream  Regulate mid-stream  More market oriented down-stream  Sufficient Storage and Peak-Shaving Capacities  LNG, U/G caverns, hi-pressure pipelines

  61. Slide 61: Biomass and waste utilization trend

     Clean Utilization of Biomass and Waste become a Trend  Food waste  Coke oven gas  Tar oil  Agricultural waste  Powder coal  Capitalizing on the 23Mn Strong Customer-base  Extended products/services 61

  62. Slide 62: Growth roles of HC, MU and NE

    HC MU NE Remains as a stable, Continues to be a Positioned to be a low-growth mid-growth high-growth driver cash generating locomotive having focusing on business market share & renewable/recycling & organic volume clean fuels, while expansion while developing proprietary capturing the technologies,

  63. Slide 63: Sustaining Growth

    Sustaining Growth Not to scale OPAT 1994 2008 Hong Kong Core + Mainland + New Energy Utilities 132 yrs 1862 2005 2009 2016 2021 63

  64. Slide 64: Thank You

    Thank You EXPANDING NEW HORIZONS

  65. Slide 65: Disclaimer

    Disclaimer This presentation and subsequent discussion may contain certain forward-looking statements. These forward-looking statements reflect the company’s view on some future events and involve known and unknown risks and uncertainties and other factors which may cause actual performance and deve

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