China Natural Gas Reports Q4 and Year End 2010 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 fourth quarter and full fiscal year ended December 31, 2010.

Fourth Quarter 2010 Results

Revenue in the fourth quarter of 2010 increased 25% to $27.12 million from $21.67 million in the fourth quarter of 2009, driven by addition of fueling stations and increase in the number of residential and commercial pipeline customers. Sales of natural gas grew approximately 36% year-over-year to $21.83 million, from $16.10 million in the fourth quarter of 2009. Gasoline revenue in the fourth quarter of 2010 increased 9% to $2.12 million, from $1.94 million in the prior year’s period. Installation and services revenue decreased 12% year-over-year to $3.18 million, from $3.63 million a year ago. In the fourth quarter of 2010, sales of natural gas, gasoline, and installation and other services contributed 80%, 8%, and 12% of total revenue, respectively.

Gross profit in the fourth quarter of 2010 expanded 7% to $11.31 million, from $10.53 million in the same period of 2009, driven by the increased sales volume of natural gas. Gross margin in the fourth quarter of 2010 was 42%, compared to 49% a year ago, was mainly due to the increase of procurement cost of coal bed methane in Henan province.

In total, operating expenses in the fourth quarter of 2010 increased by approximately $1,55 million to $5.31 million, from $3.76 million in the same period of 2009. Operating income in the fourth quarter of 2010 was $6.00 million, a decrease of 11% year-over-year, from $6.77 million in the same period of 2009.

During the quarter, the Company recognized $285,569 of non-cash gain from the change in the fair value of warrants, compared to $442,432 in the fourth quarter of 2009. Income tax expense was $1.07 million at an effective tax rate of 17%, as compared to an effective tax rate of 16% in the fourth quarter of 2009. Net income in the fourth quarter of 2010 decreased 17% to $5.08 million, or $0.24 per diluted share, from $6.12 million, or $0.27 per diluted share, in the fourth quarter of 2009.

Excluding the impact of the non-cash expenses,  adjusted net income was $4.79 million, versus $5.68 million in the fourth quarter of 2009. For the fourth quarter of 2010, adjusted earnings per diluted share was $0.23, versus $0.26 per diluted share in the fourth quarter of 2009.

Mr. Qinan Ji, Chairman and CEO of China Natural Gas, commented: “We are very pleased with our strong growth and profitability for the fourth quarter and full year 2010. During this quarter, we increased our number of pipeline customers to 115,479, and we expanded the number of our CNG gas stations to 39. We continued to see higher sales volumes resulting from the increasing number of hybrid vehicle fleet and municipal vehicles in the city of Xi’an, which utilize compressed natural gas as a cleaner, cheaper and more efficient fuel alternative. We believe our strong performance in 2010 demonstrated the long-term market potentials for our CNG gas stations as well as our piped natural gas and installation services for residential, commercial and industrial customers.”

Financial Highlights for the Fiscal Year 2010:

* Revenue increased by 11% to $89.95 million, primarily due to the rise in sales price of natural gas and gasoline in 2010;

* Gross profit decreased by 2% to $39.41 million;

* Income from operations decreased by 24% to $19.03 million from $25.05 million in fiscal year 2009.

* Non-GAAP net income of $15.43 million, or $0.72 per diluted share

Revenue for fiscal year 2010 increased by 11% to $89.95 million from $81.07 million for fiscal year 2009, mainly due to the rise in sales prices of natural gas and gasoline in 2010. Revenue from sales of natural gas increased by 15% to $71.37 million in the year 2010 from $62.24 million in the prior year. Gasoline revenue increased 18% to $7.52 million from $6.38 million in the prior year. Installation and other revenue decreased by 11% to $11.06 million from $12.45 million in the fiscal year 2009.

Gross profit for fiscal year 2010 decreased by 2% to $39.41 million from $40.16 million in the year 2009. The decrease was mainly due to the increase in the procurement cost of coal bed methane in Henan province. In fiscal year 2010, gross margin decreased by 5% to 44% from 49% in 2009. Operating expenses in the fiscal year 2010 increased by 35% to $20.39 million from $15.11 million in the year 2009. This increase was mainly due to four additional CNG fueling stations were acquired in 2010 and the subsidiaries of our variable interest entity in Hubei and Jinbian were in the initiation stage with material management expenses.

Income from operations decreased by 24% to $19.03 million from $25.05 million in the year 2009. Operating margin decreased by 10% to 21% from 30.9% in the prior year.

Net income for fiscal year 2010 decreased by 9% to $17.22 million, or $0.80 per diluted share, from 18.83 million, or $$1.12 per diluted share, in the fiscal year 2009. Excluding the impact of the non-cash expenses explained above, net income would have been $15.43 million, or $0.72 per diluted share, representing a year-over-year decrease of 24%.

Balance Sheet

As of December 31, 2010, the Company had cash and cash equivalents of $10.05 million, compared with $36.34 million as of September 30, 2010, $42.61 million as of June 30, 2010, and $48.18 million as of December 31, 2009.

Mr. Ji concluded: “We remain optimistic about the market growth and potentials for natural gas usage in the developing Shaanxi and Henan provinces. We will continue to focus on growing our business strategically by steadily expanding our CNG customer base, especially focusing on sales to fleet vehicles and taxis. We are confident that our strong balance sheet, our current infrastructure, technical expertise and strategic CNG expansions will help sustain our steady growth and profitability.

We also continue to remain optimistic about the long-term opportunities in the LNG market as China aims to increase natural gas usage. Upon the completion of our new LNG plant, we intend to aggressively grow our LNG business so as to capture a sizable share of China’s emerging LNG market. We believe that once in full operations, our LNG business will enable us to further strengthen our market position, accelerate our growth and will bring greater value to our shareholders.”

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Source: China Natural Gas, March 15, 2011;