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China Natural Gas Inc. Reports Operating Results (10-Q)

November 15, 2010 | About:

10qk

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China Natural Gas Inc. (CHNG) filed Quarterly Report for the period ended 2010-09-30.

China Natural Gas Inc. has a market cap of $130.05 million; its shares were traded at around $6.1299 with a P/E ratio of 6.39 and P/S ratio of 1.6.

Highlight of Business Operations:

We had total revenues of $22,326,474 and $20,125,184 for the three months ended September 30, 2010 and 2009, respectively, and revenues of $62,828,896 and $59,395,370 for the nine months ended September 30, 2010 and 2009 respectively. We had net income of $3,584,842 and $4,647,519 for the three months ended September 30, 2010 and 2009, respectively, and net income of $12,140,615 and $12,711,898 for the nine months ended September 30, 2010 and 2009, respectively.

On June 30, 2010, we commenced the test run of phase I of our LNG plant in Jingbian County, Shaanxi Province, which, when operational, will have a processing capacity of 500,000 cubic meters per day, or approximately 150 million cubic meters on an annual basis. As of September 30, 2010, we had invested $61.9 million in phase I of this project. We expect to invest an additional approximately $6.6 million in phase I of our LNG plant, including $4.4 million for construction costs and $2.2 million in capitalized interest, to complete test runs and satisfy installment payments to contractors. The total expected cost of $68.5 million is more than we anticipated. The increased costs to achieve LNG processing capacity of 500,000 cubic meters are attributable to unforeseen cost overruns and escalations, including increases in material and labor costs incurred to reinforce pilings based upon modified engineering analyses, as well as rising land prices, which we believe resulted from recent energy resource exploration activities in nearby areas. Phase I construction has also experienced delays due to changes in government policies with respect to tariff exemptions for core equipment imported by us and related additional document requirements of the customs agency of Shaanxi Province, and increased international shipment times for ordered equipment due to the modification by international shippers of traditional shipment routes to avoid pirates along the coast of Somalia, both of which prolonged the delivery time for equipment we ordered from outside China.

Natural Gas from Fueling Stations. Natural gas revenue from our fueling stations increased by 6.1%, or $907,994, to $15,697,918 during the three months ended September 30, 2010 from $14,789,924 during the three months ended September 30, 2009, and contributed 70.3% of our total revenue, the largest of our four major business lines. The increase in natural gas revenue was primarily due to the addition of four new fueling stations during the second quarter of 2010 and one new fueling station in the third quarter of 2009, offset by the closed one fueling station during the third quarter of 2010. During the three months ended September 30, 2010, we sold 42,291,708 cubic meters of compressed natural gas through our fueling stations compared to 40,420,123 cubic meters during the three months ended September 30, 2009. In the three months ended September 30, 2010, the average revenue of our fuel stations was $402,511 and the average sales volume was 1,084,403 cubic meters of compressed natural gas per station, compared to approximately $418,622 and 1,144,074 cubic meters in the three months ended September 30, 2009. The reason for the decline in per station sales was primarily due to the construction of main subway lines in Xi an, which caused certain bus routes to deviate from our stations and resulted in decreased sales. During the three months ended September 30, 2009, unit selling price was $0.34 (RMB 2.33) and $0.46 (RMB 3.10) net of VAT in Shaanxi and Henan Provinces, respectively, or $0.38 (RMB 2.54) on an average basis, compared to unit selling price of $0.34 (RMB 2.33) and $0.42 (RMB 2.83) net of VAT in Shaanxi and Henan Provinces, respectively, or $0.37 (RMB 2.50) on an average basis during the three months ended September 30, 2009.

Gasoline. Revenue from gasoline sales increased by 16.6 %, or $270,879, to $1,904,357 during the three months ended September 30, 2010 from $1,633,478 during the three months ended September 30, 2009, and contributed 8.5% of our total revenue. The gasoline revenue increase was primarily due to an increase of 9.3% in the unit sales price from $0.69 (RMB 4.73) per liter in the three months ended September 30, 2009 to $0.76 (RMB 5.15) per liter in the three months ended September 30, 2010 and a 6.2% increase in sales volume from 2,357,490 liters to 2,502,600 liters.

Installation Services. Revenue from installation services decreased by 8.9%, or $215,970, to $2,199,580 during the three months ended September 30, 2010 from $2,415,550 during the three months ended September 30, 2009, and contributed 9.9% of our total revenue. We believe the decrease was primarily due to a slowdown in the property market, which led to a decrease in demand for installation services.

Automobile Conversion Services. Revenue from our automobile conversion division decreased by 37.9%, or $235,411, to $386,359 during the three months ended September 30, 2010 from $621,770 during the three months ended September 30, 2009, and contributed 1.7% of our total revenue. We believe the decrease was primarily due to an increasing percentage of CNG vehicles that have already undergone conversion, as well as increased market competition.

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