China Natural Gas Reports Second Quarter 2011 Results

China Natural Gas, Inc., a leading provider of compressed natural gas (CNG) for vehicular fuel and pipeline natural gas for industrial, commercial and residential use in Xi’an, China, announced its financial results for the second fiscal quarter ended June 30, 2011.

Qinan Ji, Chairman and CEO of China Natural Gas, Inc. commented: “We are pleased to share the results of our second quarter, as we believe that they demonstrate continued progress toward our sector and geographic growth and forward integration objectives. The company has successfully commenced commercial production of its Jingbian liquefied natural gas (LNG) plant on July 16, 2011, which represents a key milestone in its corporate history.

Our network of compressed natural gas, or CNG, fueling stations currently contains 38 stations, a significant presence in the markets we operate in. Our outlook for the second half of the year is promising as we continue to grow our business, and we look forward to sharing any future developments as they materialize.”

Second Quarter 2011 Financial and Operating Results

Revenues in the second quarter of 2011 increased by 29.2% to $27.31 million from $21.14 million in the second quarter of 2010, driven by the increase in the average unit selling price per cubic meter of CNG (74.2% of our revenues was generated from the sale of CNG) from $0.37 to $0.48, as well as an increase in the number of residential and commercial pipeline customers. Natural gas sales grew by 37.4% year-over-year to $22.29 million, up from $16.22 million in the second quarter of 2010. Gasoline revenues in the second quarter of 2011 decreased to $1.97 million, down by 2.9% from $2.03 million in the same period of the prior year, which was mainly attributable to our closure of four out of our eight gasoline fueling stations during the fourth quarter of 2010. Installation and services revenue increased by 6.0% year-over-year to $3.05 million from $2.88 million in the comparable period of 2010. In the second quarter of 2011, sales of natural gas, gasoline, and installation and other services contributed 81.6%, 7.2%, and 11.2% of the total revenues, respectively.

Gross profit in the second quarter of 2011 increased by 16.8% to $11.23 million, from $9.62 million in the same period of the prior year. Gross margin in the second quarter of 2011 was 41.1%, compared to 45.5% a year ago. The increase in gross profit was consistent with the increase in sales revenues, although our gross profit margin decreased as described below. Gross margin decreased primarily due to our growth rate of sales revenue being lower than that of costs of revenue, which was primarily attributable to the material increase in average purchasing costs of natural gas.

Operating income in the second quarter of 2011 was $5.34 million, an increase of 14.9% year-over-year from $4.65 million in the second quarter of 2010.  The change was primarily attributable to the increase in revenue and gross profit.

Income tax expense was $1,064,018 for an effective tax rate of 19.5%, as compared to an effective tax rate of 17.6% in the second quarter of 2010.

Net income in the second quarter of 2011 decreased 3.7% to $4.39 million, from $4.56 million in the second quarter of 2010. Net margin decreased to 16.1% during the three months ended June 30, 2011 from 21.6% during the three months ended June 30, 2010. EPS was $0.21 per diluted share in both the second quarter of 2011 and 2010.

As of June 30, 2011, the Company had $12.22 million in cash and cash equivalents, compared to $10.05 million in cash and cash equivalents at December 31, 2010. The increase was primarily attributable to the increase in unearned revenue, the reduction in advances to suppliers and the decrease in investments in construction in progress for the JBLNG project.

Net cash provided by operating activities was $12.72 million for the six months ended June 30, 2011, compared to net cash provided by operations of $10.88 million for the six months ended June 30, 2010. The increase was primarily due to the increase in unearned revenue and the reduction in prepaid expense and other current assets.

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Source: China Natural Gas, August 9, 2011;