Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Executives

Jackie Shi - Director of IR

Shuwen Kang - Chief Executive Officer

Zhaoyang Qiao - Chief Financial Officer

Analysts

China Natural Gas, Inc. (OTC:CHNG) 2Q 2013 Results - Earnings Call Transcript August 16, 2013 9:00 AM ET

Operator

Good morning and welcome to the China Natural Gas Inc.'s earnings call for the second quarter of 2013. All participants will be in a listen-only mode. (Operator Instructions) After today’s presentation, there will be an opportunity to ask questions. (Operator Instructions)

Please note this event is being recorded. I would now like to turn the conference over to Jacky Shi, Director of Investor Relations. Please go ahead, sir.

Jacky Shi

Thank you, Laura and good morning and thank you for joining China Natural Gas Second Quarter 2013 Conference Call. Joining us today are, Mr. Kang, our CEO and Mr. Zhaoyang Qiao, Chief Financial Officer.

I'll be interpreting for Mr. Kang and Mr. Qiao today. We appreciate your patience with our interpretations.

Before we begin, I would remind all listeners that throughout this call, in addition to historic statements, the company and its representative may make some statements which constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, with respect to China Natural Gas. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events, our performance and our underlying assumptions and other statements other than statements that are historical in nature.

These forward-looking statements are based on the management’s expectations and are subject to risks and uncertainties that may result in expectations not being realized and it may cause actual outcome to differ materially from the expectations reflected in these forward-looking statements.

Potential risks and uncertainties include product and service demand acceptance, change in technologies, our economic conditions and the impact of the competition of pricing, the impact of the government’s regulations and other risks contained in these statements, filed from time-to-time with the SEC.

All such forward-looking statements whether raising our goal, and whether made by on behalf of the company, expressed and qualified by the cash flow statements, because forward-looking statements are subject to risks and uncertainties, we caution you not to place undue reliance on these statements.

Forward-looking statements made during this conference call only represents management’s estimate as of today August, 16, 2013. China Natural Gas assumes no obligations to update these projections in the future as market condition change.

At this point, I would like to turn the call to Mr. Qiao. Mr. Qiao will be speaking in Mandarin and I will translate for Mr. Qiao. Mr. Qiao, please go ahead.

Zhaoyang Qiao

[Foreign Language]

Welcome everyone to China Natural Gas second quarter 2013 earnings conference call. Today we are very pleased to share with you our quarterly financial results.

[Foreign Language]

This is Zhaoyang Qiao, CFO of the company, today we are very pleased to share with you our quarterly financial results to talk about our recent development and our strategic plan.

[Foreign Language]

First before we go into the details of our second quarter financial results for 2013 please allow me to share with you some brief introduction of our achievements during this quarter.

[Foreign Language]

Our revenue decreased by 9.6% to $34.25 million during the second quarter of 2013 from the $37.9 million for the fueling stations that during the 2012.

[Foreign Language]

Driven by closure of the three fueling stations in the second quarter of 2012, three fueling stations in the third quarter 2012, one fueling station in October 2012 and one fueling station in April 2013 because of changes in the market conditions.

[Foreign Language]

Over the same period our gross profit decreased by 18.7% to or $11.25 million from $13.83 million, where net income decreased by 37.4% to $3.17 million.

[Foreign Language]

[Our] net income decreased by 37.4% to $3.17 million or $0.15 per diluted share during the second quarter of 2013 from the $5.07 million or $0.24 per diluted shares for the previous year in 2012 primarily due to the decrease in the gross profit of natural gas the fueling stations and LNG.

[Foreign Language]

As of June 30, 2013 our cash balance was $7.39 million and our operating activities provided net cash of $9.99 million during the first half of 2013.

[Foreign Language]

Regarding the environment of our industry, we remain optimistic about continuing support from the government which has been encouraging, the adoption of the [greenfield] and the increased use of CNG and LNG technology which we anticipated where we are stimulus on the results of our operations over the coming years.

[Foreign Language]

We are confident that by implementing our comprehensive growth strategies which incorporates the market potentials for converting vendors to using LNG and the construction of the our own LNG plants.

[Foreign Language]

We are well positioned to capitalized on the increasing demand for the clean energy in China. Through the strategic partnership infrastructure development and excellence in service we will continue to establish our company as a leader in this rapid developing industry.

[Foreign Language]

Jacky Shi

This concludes Mr. Kang’s prepared remarks. Now I would like to begin detailed discussion of our second quarter 2013 results After that we will be open to your question.

[Foreign Language]

Our revenue in the second quarter of 2013 decreased by 9.6% to $24.35 million from the $37.9 million in the second quarter of 2012.

[Foreign Language]

Driven by a closure of the three [drilling] stations in the second quarter of 2012, three [drilling] stations in the third quarter of 2012 and the one [drilling] in October 2012 and one [drilling] station in April, 2013 because of changing market conditions.

[Foreign Language]

Sales revenue of natural gas decreased by 9.1% from year-over-year to $31.77 million from the $34.93 million U.S. second quarter of 2012.

[Foreign Language]

CapEx revenue in the second quarter of 2013 decreased by 28.2% to $0.5 million from $0.7 million in the same period of the last year. Mainly because of the closure of one gasoline drilling stations during the fourth quarter of 2012.

[Foreign Language]

Installation and automobile commercial service revenues decreased by 49% year-over-year to 1.98 million from the 2.27 million a year ago.

[Foreign Language]

In the second quarter of the 2013, sales of natural gas, gasoline and installation and automobile commercial service contributed [22.7%], 1.5% and 7.8% of total revenue respectively.

[Foreign Language]

The gross profit in the second quarter of 2013 decreased 18.7% to 11.25 million from the 13.83 million in the same period of last year.

[Foreign Language]

Gross margin in second quarter of 2013 was 32.8% compared to 36.5% a year ago. Gross margins decreased primarily due to the increase in the gross margins for our LNG business.

[Foreign Language]

Operating income in the second quarter of 2013 was 4.04 million a decrease of 38.6% year-over-year from the 6.87 million,

[Foreign Language]

primarily attributable to the decrease in the gross profit of natural gas from filling stations and LNG. Our operating expenses in the second quarter of 2013 decreased by 0.6% to 7.21 million as compared to the 7.26 million in the same period of 2012.

[Foreign Language]

Income tax expenses was [0.71] million and effective tax rate of 18.2% as compared to the 1.25 and effective tax rate of 19.8% in the second quarter of 2012.

[Foreign Language]

The decrease of effective income tax rate was primarily due to the reduced income tax rate of the 50% enjoyed by Jingbian LNG beginning of January 1, 2013.

[Foreign Language]

Net income in the second quarter of 2013 decreased by 37.4% to [2.70] million or $0.15 per diluted shares from the 10.07 million or $0.24 per diluted shares in the second quarter of 2012.

[Foreign Language]

Now, I would like to draw your attention to our balance sheet and the cash flow. At the end of the second quarter of 2013 our cash and cash equivalent was 7.39 million compared to the 10.86 million and at the end of year 2012.

[Foreign Language]

The decrease was primarily attributable to the construction of the [wet land] in (inaudible) province and LNG (Inaudible) in [Kube] province and the repayment of loan from the Shanghai Pudong Development Bank. Thanks to our business models our cash converting cycle remains a fast and attractive ones; our account receivable was only $2.58 million

[Foreign Language]

Net cash provided by operating activities was 9.99 million during the first quarter of 2013, compared to the [80.85] million for the same period 2012. The decrease was primarily due to the increase in advance (Inaudible), accounts receivable and other receivables and adjustments for the non-cash expense items.

[Foreign Language]

Looking at the outlook of the China Natural Gas market in terms of the amount, we are optimistic about the faster increasing consumption of natural gas across different industry verticals. The energy demand in China is expected to climb over the next two decades.

[Foreign Language]

On the pricing of our product, we're confident of our future, our pipeline of natural gas in our core markets currently and our natural gas price regulated by the government.

That's our price yearly where below the price level on the international market. We believe the retail price for the gasoline and diesel which is yearly matured here than those of natural gas where another stimulus to given consumption and price of natural gas in the future.

In concluding, we will continue to focus on extending our LNG retail network and the customer base and growing our LNG business to formulate and build an integrated value chain, leveraging our strength of the considerable operational scale and attractive business model. We're confident that China Natural Gas will deliver strong sustainable financial results and to ultimately reward our supportive shareholders with greater price value in the long term.

Now, this concludes my prepared remarks for the second quarter of 2013. Operator we would now open to the call for the questions.

Question-and-Answer Session

Operator

(Operator Instructions). And our first question is from [Tom Carreti] of Xcel Energy.

Unidentified Analyst

The company made a statement that they filed Chapter 11 bankruptcy that it would benefit company and the shareholders. I would like to know how Chapter 11 bankruptcy is going benefit the shareholders.

Shuwen Kang

[Foreign Language]

This is Mr. Kang, I am the CEO of the company. Thank you for the questions. As you have seen from the company planning and we just filed Chapter 11 applications which we’re as you know which we’re (inaudible) good results for the company, and you can also know and the company -- the management team of the company focus more on our business models right now and we are (inaudible) to our business in the long term and we will try to maximize the results of the (inaudible) for the company.

Operator

Mr. Carretti, are you finished with your questions?

Unidentified Analyst

Yes, I am. Thank you.

Operator

Our next question is from [Ken Park], Private Investor.

Unidentified Analyst

I think with the previous question was really asking was no good direction of the company as well it does, it has the bankruptcy issue still surrounding and it’s not going to allow shareholders to reap rewards, is there anything the company seems a lot larger than its current market cap based on all of your assets? Would the company ever consider bankruptcy just to reward shareholders with the potential for the book value?

Unidentified Company Representative

[Foreign language]

And from the management team’s perspective, we were continued to focus more on our business models. And for bankruptcy procedures, the company has actually increased international counsel to fill these measures, and we will try best to deliver and try to get the better financial results for our shareholders.

And here some I will add some more comments. And with the contract and we work closely with our new counsel to deal with the [evac] issue and another chance and the company and the management teams. Also the company currently use the process of the negotiation with the (inaudible) expense and we will try to deliver some results to our investors in the long term.

Unidentified Analyst

Okay. Is there any time frame?

Unidentified Company Representative

[Foreign Language]

And I can't give you specific timeline right now and we are as I said -- and we work very closely. We are legal counsel. And it's varied and new divestments and we were meet at the public.

Unidentified Analyst

Okay. Thank you

Operator

(Operator Instructions). I am showing no further questions. I'll turn the conference back over to management for any closing remarks.

Jackie Shi

Operator, at this time if there are no more questions, I'll turn the call back to Mr. Qiao for the final remarks.

Zhaoyang Qiao

[Foreign Language]

Thank you. On behalf of everyone at China Natural Gas, we would like to thank all of you for your continued support and interest in our company. As always, Mr. Kang remains optimistic about its responsibility to each shareholder. We sincerely invite every shareholder to come to Shiyan, China to visit in person and study the market in Shiyan in China.

And we remain committed to maximizing the shareholder value in the future. We hope you understand that we are very dedicated to our aim of being a leading natural gas provider in China. We're carefully conducting due diligence and evaluating the necessary partnership and working with the local governments to bring natural gas service to green cities in the modest economic way. Please don’t hesitate to email or call us with your questions. Thank you very much.

Operator

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: China Natural Gas' CEO Discusses 2Q 2013 Results - Earnings Call Transcript
This Transcript
All Transcripts