ENN ENERGY(02688) Company Profile
    Company Profile  
  Stock Name ENN Energy  
  Listing Date 2002-06-03  
  Sector Utilities  
  Chairman WANG Yusuo  
  Par Value 0.1  
  Total Issued Capital 1.125B  
  Market Cap 88.070B  
  Principal Activities

Principally engaged in investment and construction, as well as operation and management of gas pipeline infrastructures, vehicle and ship refuelling stations and integrated energy stations, the sales and distribution of piped gas, liquefied natural gas and other multi-energy products, and energy trading business and provision of other services in relation to energy supply in the PRC.

Latest Results

The Group's profit attributable to shareholders for the year ended 31-12-2019 amounted to RMB 5.67 billion, an increase of 101.2% compared with previous corresponding period. Basic earnings per share was RMB 5.0491. A final dividend of HKD 1.67 per share was declared. Turnover amounted to RMB 70.18 billion, an increase of 15.6% over the same period last year, gross profit margin up 0.4% to 16.1%. (Announcement Date: 16 Mar 2020)

Business Review - For the year ended December 31, 2019

The Group’s business continued to grow steadily in 2019. The Chinese government’s determination to push forward “coal-to-gas” conversion for pollution control and to promote natural gas as one of the main energy sources remained firm, while the promotion of integrated utilisation of multiple energy sources, and a quality and efficiency-oriented energy supply model by local governments also brought huge business opportunities to the Group. With a strong execution ability, the Group actively developed new natural gas customers, promoted coal-fired boilers replacement and conducted oil or electricity-to-gas conversion for commercial and industrial (“C/I”) customers. The Group’s retail natural gas sales volume in 2019 increased by 14.7% to 19,924 million cubic meters, and continued to outperform the national growth of 9.4%. In terms of non-gas energy sales, with 36 new integrated energy projects being put into operation during the year and the utilisation rate of existing projects gradually improved, sales of integrated energy including cooling, heating, electricity and steam increased significantly by 137.2% to 6,847 million kWh. As quality projects turn fully operational gradually, they will provide new momentum for the Group’s future growth. The integrated energy solutions we provided not only brought sustainable profits to the Group, but also successfully reduced customers’ energy consumption by more than 227,437 tons of standard coal and 1,089,050 tons of carbon dioxide emissions, which made great contributions to regional energy conservation and emission reduction.

The Group continued to seize opportunities arising from industry consolidation and obtained 8 quality gas projects in Anhui Province and Shanghai through the acquisition of Xuanran Natural Gas Co., Ltd as the Company’s subsidiary during the year. We obtained another 7 projects in Shandong Province, which further strengthened our deployment in this prosperous region with huge gas demand. Through the strategic M&A and new operating rights acquisition, the Group added 30 new city-gas projects during the year. As of 31 December 2019, the Group operated a total of 217 city-gas projects and 98 integrated energy projects in China, spanning over 22 provinces, municipalities and autonomous regions.

Retail Gas Sales Business

The Group upheld its customer-oriented philosophy, dug deep into existing customers and explored new customers with potential demand. As of 31 December 2019, natural gas sold to C/I customers, residential customers and gas refuelling stations increased by 14.7% year-on-year to 19,924 million cubic meters, driving the revenue up 16.9% to RMB40,049 million.

Commercial and Industrial Market

Most of the Group’s projects are located in key areas of air pollution prevention and control, including Beijing-Tianjin-Hebei, Henan, Shandong, Jiangsu, Zhejiang, Guangdong, where local governments strictly implement environmental protection policies. Taking advantage of the opportunities arising from air pollution prevention and control, the Group tapped the potential of the C/I market, and actively promoted the replacement of coal-fired boilers for C/I users. At the same time, the Group successfully developed a large number of new customers leveraging on its advantage of owning multiple industrial park concessions, and opportunities arising from the relocation of industrial facilities to industrial parks. During the year, the Group developed a total number of 27,656 C/I customers (installed gas appliances with designed daily capacity of 18,156,199 cubic meters), among which, incremental designed daily capacity from newly developed “coal-to-gas” customers was approximately 5,810,000 cubic meters, accounting for 32.0% of newly developed C/I customers. The Group implemented market pricing for C/I construction and installation fees, with the average fee remained stable during the year. As of 31 December 2019, the total number of C/I customers served by the Group amounted to 148,761 (installed gas appliances with designed daily capacity of 124,708,782 cubic meters).

To cope with the challenges of upstream gas price hike and the slowdown in economic growth, the Group collected and analysed customer energy consumption data through the established intelligent operation platform, and worked out solutions to address their issues in managing energy consumption, such as providing customers with energy-saving services to improve the economics of using natural gas, and tailoring different sales package for customers with different affordability. The Group also provided discount to customers with stable and large gas consumption volume, and those with peak-shaving or interruptible gas needs, in an attempt to continue expanding gas sales volume while supplying gas stably and safely. The Group managed to maintain a stable dollar margin of gas sales thanks to its effective pass-through mechanism during price hike period.

The “ENN Smart Energy” APP launched by the Group enabled C/I customers to experience convenient online services. C/I customers who have installed standard gas meters, IoT smart meters and Bluetooth smart meters can have quick access to online payment and invoicing functions. New users can also receive messages on project construction progress updates and view service progress online in real time. The APP was equipped with a fast channel for energy solution, which enables customers to reach online professional consultants anytime, greatly improving customer satisfaction. During the year, total volume of natural gas sold to C/I customers reached 15,334 million cubic meters, representing an increase of 15.9% year-on-year, and accounted for 77.0% of the retail natural gas sales volume.

Residential Market

China is sprinting toward a “moderately well-off society”. In this context, the large-scale urbanisation has been carried out with the utilisation of clean energy to improve the environment as well as to meet the demand arising from people’s pursuit of quality life. This provides the Group with enormous opportunities for developing urban residential market. On the other side, the Group continued to work with local governments on implementing their development initiatives, such as “every township-level unit has access to natural gas”, “every village has access to natural gas” and “building beautiful villages”, and prudently carry out “rural coal-to-gas” conversion in areas with higher affordability such as Tianjin, Hebei, Shandong and Henan as part of its efforts to assist the local governments in achieving the replacement of scattered coals for the prevention and control of air pollution.

During the year, the Group developed a total of 2,397,000 residential households, in which new buildings, existing buildings and “rural coal-to-gas” conversion accounted for 67%, 12% and 21% respectively. The average construction and installation fee was RMB2,539 per household, maintaining at a stable level over the past few years. As of 31 December 2019, the Group had developed 20,920,000 residential customers cumulatively, raising the average piped gas penetration rate from 58.8% at the end of December 2018 to 60.4%.

According to the National Bureau of Statistics, the disposable income of national residents grew faster than the national economic growth rate in 2019, and the average per capita disposable household income in urban areas was RMB42,359, indicating the improvement of people’s living standards. The Group continued to focus on natural gas sales for urban residents and established tier-pricing mechanism to further increase the gas sales profit from urban residential users. As of 31 December 2019, the Group cumulatively developed 1.82 million natural gas space heating users and most projects had established residential tier-pricing mechanism. Benefiting from the ramping up of gas consumption by newly developed residential customers and natural gas space heating users, the volume of natural gas sold to residential users increased by 15.9% to 3,345 million cubic meters, accounting for 16.8% of retail gas sales volume.

Integrated Energy Business

In 2019, seizing opportunities arising from stricter air pollution prevention and control, relocation of industrial facilities to industrial parks, adjustment of heating supply structure in industrial park, and the incremental power distribution reform, the Group kept “getting quality projects” and “executing well” in mind and developed new projects by providing heating, electricity and natural gas according to the local demand. Moreover, the Group took effort in promoting the systemic optimisation and upgrade of both the existing projects and projects under construction, and managed to promote both the quality and quantity improvement of integrated energy business through optimising existing projects. During the year, a total of 36 integrated energy projects were put into operation, making the cumulative number climb to 98, bringing a total of 6,847 million kWh of integrated energy sales to the Group, up 137.2% year-on-year. In addition, 22 integrated energy projects were under construction, which will contribute 20,003 million kWh’s integrated energy sales in full operation once gradually put into operation in the next one or two years and turn fully operated. During the year, the Group signed 75 new industrial park integrated energy projects, amongst which, 53 are located outside the Group’s city-gas concessions. We believe the business will develop rapidly when some of the quality projects are put into operation. In addition, the Group has accumulated a number of quality incremental power grid projects, and the development of various projects has laid a good foundation for promoting the Group’s transformation and upgrading to become an integrated energy service provider.

The Group adhered to its principle of integrated energy development, explored and utilised the most competitive resources based on different local conditions, and developed integrated energy project. The No.1 Integrated-energy Station Project of Mudanjiang Economic Development Zone, Heilongjiang Province, which is a technological innovation and a breakthrough of biomass pyrolysis technology. Mudanjiang Economic Development Zone is a national level development zone and one of the national incremental distribution network pilot areas. The project made full use of local rice husk, corncob, sawdust and other biomass resources, adopted biomass energy pyrolysis technology and multi cogeneration device to produce bio oil, gas and carbon, and provided steam and a variety of energy products for downstream storage and users, with better economic and social benefits such as promoting resource recycling, driving energy conservation and emission reduction. The project was going to facilitate biomass pyrolysis industrialisation, and the integrated development of power distribution, photovoltaic and other geothermal electricity to build a biomass ecosystem that is fit for scale replication and drive overall development.

New Gas Projects Development

The group seized the opportunity arising from industry consolidation. Leveraging on its keen market insight, excellent safety and operation management, flexible project development strategies, and leading integrated energy service philosophy, the Group acquired exclusive operating rights of 30 city-gas projects during the year with an incremental population of 4,015,000, and expected to drive additional gas sales volume of more than 2,500 million cubic meters in the coming years.

In terms of projects acquisitions, the Group acquired Xuanran Natural Gas Co., Ltd. as the Company’s subsidiary obtaining exclusive operating rights for 8 gas projects in Anhui Province and Shanghai with huge gas demands. The industries covered by the projects are all industries with growth momentum, including medical food, textile, mechanical processing, auto parts, etc., As Anhui Province is looking to benefit from the relocation of industrial facilities to industrial parks, it is expected that more large-scale industrial users will move into the province going forward, bringing greater development potential to the Group.

As of 31 December 2019, the Group had a total of 217 city-gas projects in China, spanning over 22 provinces, municipalities and autonomous regions including Anhui, Beijing, Fujian, Guangdong, Guangxi, Hebei, Henan, Hunan, Inner Mongolia, Heilongjiang, Gansu, Jiangsu, Jiangxi, Liaoning, Sichuan, Shandong, Yunnan, Zhejiang, Shanxi, Shaanxi, Shanghai, Tianjin with a population of 104 million.

A number of small and medium-sized gas companies with single business model have been under mounting pressure in recent years due to the international trade dispute, regulation on gas distribution returns, the gas shortage as well as the rising financing costs. The Group will continue to look for M&A opportunities that may bring synergies to its existing projects, and strive to expand the operational areas of city-gas business leveraging on its good corporate image, excellent safety operation capability and the integrated energy business model.

Value Added Business

Since the Group announced its “customer-centricity” business philosophy, employees started to focus on customers’ needs and managed to explore various business opportunities. The Group also provided its member companies with energy experts to evaluate the pain points faced by C/I customers and provide them with energy-saving technologies and retrofitting services, so as to maintain customers’ market competitiveness by enhancing their energy consumption and production efficiency, enabling users who could not afford natural gas to gain access to the energy, thereby driving the continuous growth of customers’ energy needs. Taking advantage of its brand influence and an online-offline service platform that connects with end customers, the Group actively promoted gas appliances such as cookers, space heaters, water heaters, kitchen ventilators, and disinfection cabinets, and launched a variety of smart products such as smart gas meters, alarms, automatic shut-off valves, etc. Gratle’s gas appliances and various household products achieved higher sales to 431,268 units during the year, representing a year-on-year growth of 75.7%.

During the year, revenue from value added business amounted to RMB1,988 million, up 38.8% year-on-year. Benefiting from the Group’s diversified value added services provided to customers and continuous efforts to promote high-end and smart products, gross profit increased significantly by 125.5% year-on-year to RMB1,236 million. Currently, penetration rate of value added business among the Group’s overall customers is only 6%, while among the newly developed customers during the year, penetration rate was 15%, reflecting the rapid development of this business and its huge growth potential.

Wholesale of Gas Business

Leveraging on its well-established upstream resources network, smart dispatching system, and large-capacity LNG transportation fleets, the Group distributed LNG to downstream customers such as small-scale gas distributors, C/I customers outside its city-gas concessions, LNG refuelling stations and power plants. During the year, sales volume increased by 18.1% year-on-year to 7,039 million cubic meters, maintaining a leading share in domestic LNG trading market. However, the warm weather last year resulted insignificant peak demand, coupled with the increasingly fierce competition pressuring downstream LNG market price, wholesales of gas business revenue only up by 2.0% to RMB18,465 million, gross profit decreased by 27.2% year-on-year to RMB166 million.

In the future, the Group will continue to foster alliance and collaboration with upstream suppliers to lock in core resources, strengthen the advantages of the integration of LNG resources, distribution, storage and logistics. The Group will seize opportunities arising from the operation of national pipeline company, Shanghai and Chongqing Petroleum and Natural Gas Exchange and the strategic positioning of Zhoushan terminal to expand its wholesale of gas business.

Business Outlook - For the year ended December 31, 2019

Demand for clean, efficient, economical, safe and convenient energy is an eternal pursuit of mankind. After 40 years of reform, China has become the world’s second largest economy, and the world’s largest energy producer and consumer. Looking ahead, China’s energy development is moving towards an era of rapid development. With the transformation, innovation and integration of energy technology, digital technology and energy system, the energy industry is gradually evolving from a traditional energy system to a modern energy system, bringing along tremendous changes to the industry. Energy reform is pushing the transformation from high-carbon to low-carbon or even carbon-free energy consumption; the energy supply is undergoing an evolution from centralised to distributed, and from supply-driven to user-demand-oriented. The relationship between digital information and energy has changed from the absence of energy information and information-assisted energy to data-guided orderly energy flow. The reform of energy such as oil, gas and power system has been deepened, moving from strict planning and control to market-oriented trading. The change is inevitable, and the future is expected. Only by grasping the industry trends and setting clear goals can we gain the opportunity and make arrangement in advance to win in the future.

Looking forward, in developing existing city-gas business, the Group will dig deep when exploring customer potential demand, gain deeper understanding of customer needs, provide better service for existing customers, and focus on seizing opportunities of industry reshuffle in the economic downturn, actively explore quality projects with huge industrial gas and integrated energy demand through joint M&A to promote gas sales volume. Meanwhile, the Group will actively plan and work out supporting measures to address regulatory policies such as engineering and installation fee, gas distribution return, and upstream reforms. In expanding the integrated energy business that supports future development, the Group will adhere to the strategy of progressive implementation and investment, strengthen the core competitiveness of integrated energy business and innovative project operation models, create core product solutions, optimise data and IoT connection and analysis to strengthen the Group’s capabilities for rapid development.

We think about the future, and we also have both feet on the ground. The coronavirus outbreak at the beginning of 2020 has affected industries across China, causing them to postpone the resumption of work after Chinese New Year, which will have certain impact on manufacturing and commercial activities as well as on the demands of natural gas. Nevertheless, the central government has introduced 30 financial measures to support the prevention and control of the epidemic, strengthen the counter-cyclical adjustment of monetary policy, maintain basic stability of the financial market, further increase financial support to regions which are greatly affected by the epidemic to better cater to social needs, and fill the demands for basic financial services and promote a sustainable and healthy development of the national economy. The National Development and Reform Commission has also brought forward low-season non-residential city gate price to relieve the mounting pressure from C/I users. The Group believes that the impact of the epidemic on China’s economy is temporary. After the epidemic, it is expected that local governments will also introduce policies to stimulate consumption and support enterprises, so that the overall domestic economic growth will gradually return to normal levels.

The Group will also take a number of measures to ensure a stable growth of the whole years’ results, including informing project companies to closely monitor customers’ production resumption plan, and be well-prepared to provide stable energy supply to customers upon their resumption. The Group will communicate with upstream gas suppliers in a timely manner to pass through the change of cost and reduce supply costs by flexibly adjusting the gas supply structure. The Group will also actively communicate with governments at all levels and seek opportunities from relevant supporting policies, cooperating with the government in terms of epidemic prevention, and actively supporting customers’ production resumption, while exploring new business opportunities. During the epidemic, most services provided by the Group have been transferred to mobile application (APP) and online platform, which will lay the foundation for the Company to develop value added business and explore more business opportunities. As a responsible utility company, the Group will actively work with the government and customers to cope with the difficulties and sustain a larger customer base for long-term development.

Notwithstanding the many uncertainties in the international political and economic situation, China-US trade talks have achieved preliminary results. It is believed that the export volume of products from China will increase, and the increasing contribution of domestic consumption to economic growth will offset the impact of some external factors. In the long run, the export of Chinese products to countries and regions along the “Belt and Road” initiative shows growth potential, which will also help the manufacturing industry flourish. China’s overall economic growth in 2019 was 6.1%, and the per capita GDP exceeded USD10,000 for the first time during the year, reflecting an improvement in the quality of economic growth. The Group has numerous projects covering the Guangdong Province and Jiangsu Province located along the Eastern coast, where the annual GDP of these provinces has exceeded or approached the RMB10 trillion, becoming the first batch of provinces named “RMB10 trillion GDP provinces” in China. We will leverage on the national strategy of facilitating the regional development around Beijing-Tianjin-Hebei, the Yangtze River Delta and the Guangdong-Hong Kong-Macao Greater Bay Area, to quickly tap new growth opportunities for future development.

Source: ENN Energy (02688) Annual Results Announcement
 

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Last Update:4/3/2020
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