[ET Net News Agency, 8 April 2020] S&P Global Ratings today said that China Resources
Gas Group Ltd.'s (CR Gas; A-/Stable/--)(01193) credit profile will benefit from strong
operating cash flow and prudent financial management. This will help the city-gas investor
and operator withstand the effects of COVID-19.
The credit rating agency believes CR Gas' growth in sales volume will slow in 2020 due
to the pandemic. Sales volume fell by about 10% year on year in January-February.
However, S&P anticipates a gradual pick-up from the second quarter as the crisis eases
in China and commercial and industrial activities resume from April. CR Gas recorded
another year of rapid growth in 2019. Sales volume was up 15.4% year on year, which
compares favorably with the national average of 9.4%. Over 90% of the increase was
attributable to organic growth, thanks to the high quality of its project portfolio and
the effective execution of projects.
The agency expects sustained but manageable pressure on the company's dollar margin in
2020. CR Gas' dollar margin was slightly compressed by RMB0.02/cubic meter to
RMB0.58/cubic meter in 2019.
In February 2020, regulators in China requested utilities to lower gas prices between
February and June to ease the financial burden on end-users. Although upstream oil and gas
suppliers will bear the price cuts, there could be a lag in pass-through of lower prices
to CR Gas' upstream counterparties.
At the same time, the regulator allowed the delay of bill payments for end users until
June, which could weigh on CR Gas' operating cash flow.
Even so, S&P believes CR Gas' strong operating cash flow in 2019 and disciplined capital
expenditure will help the company counter the headwinds from COVID-19. CR Gas had a net
cash position of about HK$350 million as of end-2019.
Given the new projects in Ningbo and Taiyuan, we forecast the company's total capital
expenditure and investment will reach HK$7.0 billion-HK$7.5 billion in 2020, compared with
about HK$5 billion in 2019. S&P estimated CR Gas' ratio of funds from operation to debt
will remain well above 50%, the threshold for maintaining the current rating. (KL)