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Public company info - Chu Kong Petroleum and Natural Gas Steel Pipe Holdings Ltd. , 01938.HK
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Chu Kong Petroleum and Natural Gas Steel Pipe Holdings Ltd., 01938.HK - Company Profile
Chairman CHEN Chang
Share Issued (share) 1,011,000,000
Par Currency Hong Kong Dollar
Par Value 0.1
Industry Petroleum & Gases Equipment & Services
Corporate Profile Business Summary: The Group mainly (i) manufactures and sells longitudinal welded steel pipes, as well as providing manufacturing service for processing raw materials into steel pipes; and (ii) engages in property development and investment. Performance for the year: For the year ended 31 December 2019, The Group’s revenue was approximately RMB1,194.0 million, representing a decrease of approximately RMB487.6 million or 29.0% as compared with that of 2018. Business Review The Group mainly (i) manufactures and sells longitudinal welded steel pipes, as well as providing manufacturing service for processing raw materials into steel pipes; and (ii) engages in property development and investment. The Group’s welded steel pipe products can be broadly categorised into LSAW steel pipes, SSAW steel pipes and ERW steel pipes. The Group are the largest LSAW steel pipe manufacturer and exporter in the PRC, and are capable of producing LSAW steel pipes that meet the X100 standard. The Group are also accredited with 11 international quality certifications such as Det Norske Veritas (“DNV”) and American Petroleum Institute (“API”). In addition, The Group are the first and the only PRC manufacturer that has successfully produced and developed deep sea welded pipes for use at 3,500m under water. The Group’s products are widely applicable to major oil and gas pipeline projects (both onshore and offshore) and infrastructure projects domestically and internationally. The Group’s Group is capable of manufacturing subsea pipes and drilling platforms for offshore projects, and is being classified as a member of the Offshore Engineering Equipment Industry*（海洋工程裝 備製造業）. The Group have benefited from and been supported by the PRC’s strategic policies and received supports from policy banks and insurance institutions in the PRC. The Group have maintained good relationships with and have obtained medium-term loans from the Export-Import Bank of China. Panyu Land Development In 2013, the Group has converted a piece of land in Panyu into commercial use. The total land area of such piece of land is 125,000m2 which accounted for 25% of the total area of the parcels of land owned by the Group in Panyu (the “Panyu Land”). The total construction area of the Panyu Land is 550,000m2. The Panyu Land was divided into three phases for development. Most of the units under Phase I of GDC have been sold. The Group had pre-sold the units under Phase II of GDC and the total contracted sales were approximately RMB794 million as at 31 December 2019. Shops of Phase I are rented for rental income. The Phase III of GDC was sold to Guangzhou City Panyu District Land Development Centre*（廣州市番禺區土地開發中 心）as disclosed in the Company’s announcement dated 20 June 2019, circular dated 7 November 2019 and announcement of poll result of the extraordinary general meeting on 28 November 2019 respectively. For more details of the disposal, please refer to the paragraph titled “Land Resumption of Phase III GDC” on page 19 below. The steel pipe business will remain as the Group’s core business. Proposed change of land use in Panyu from “industrial” to “residential and commercial” On 12 February 2018, the Group has entered into an agreement (“Agreement”) with Guangdong Yuecai Trust Co Limited*（ 廣 東粵財信托有限公司）(“Guangdong Yuecai”) and Guangzhou Asset Management Company Limited*（廣州資產管理有限公司） (“Guangzhou Asset Management”) (collectively the “Investors”) in relation to the cooperation to facilitate the change of use of land (the “Land”) held by Panyu Chu Kong Steel Pipe Co. Ltd（番禺珠 江鋼管有限公司）(“PCKSP”) from “industrial” to “residential and commercial” and the disposal of (actual and deemed) an aggregate of 59% of the equity interest in PCKSP to the Investors. Chu Kong Steel Pipe Group Co. Ltd (“CKSPG”) and PCKSP shall complete an asset reorganisation, after which, the only asset held by PCKSP shall be the Land. Pursuant to the Agreement, Guangdong Yuecai shall, by stages, (i) inject capital into PCKSP and acquire 19% of the equity interest in the PCKSP for RMB240 million; (ii) implement the asset reorganisation; (iii) apply for the change of use of the Land; and (iv) acquire 40% of the equity interest in PCKSP from CKSPG for a consideration equivalent to 40% of the fair value of the Land (after the change of use of the Land). The disposal of 59% equity interest of PCKSP was approved by the shareholders of the Company (the “Shareholders”) at the extraordinary general meeting held on 19 April 2018. The capital injection under the Agreement has been completed on 12 October 2018. Guangdong Yuecai has made capital injection into PCKSP in the amount of RMB240 million and acquired 19% of the registered capital of PCKSP (on enlarged basis). Following the completion of the capital injection, PCKSP was legally held as to 20% by Guangdong Yuecai and 80% by CKSPG. On 27 February 2019, the Group entered into the disposal agreement (the “Disposal Agreement”) with Guangzhou Xingchen Consultation Company Limited（廣州星宸諮詢有限 公司）(“Xingchen”), Guangdong Yuecai and Guangzhou Asset Management in relation to (i) the nomination of Xingchen by the Guangzhou Asset Management under the terms of the Agreement as its nominee to acquire 40% equity interest of PCKSP; and (ii) the disposal of the remaining 40% equity interest of PCKSP to Xingchen, for a total consideration of RMB2,448 million with a possible payment of the premium of RMB272 million. Details was disclosed in the Company’s announcement dated 27 February 2019 and circular dated 26 March 2019. The transactions contemplated under the Disposal Agreement were approved by the Shareholders at the extraordinary general meeting held on 16 April 2019. As at 31 December 2019, the Company has performed the following asset reorganization: (i) PCKSP’s liabilities was reduced to below RMB159 million; (ii) most of the bank guarantees by PCKSP have been released; (iii) most of the outstanding sales contracts and engineering contracts of PCKSP were either terminated or discharged; and (iv) PCKSP has transferred the equity interest in Al-Qahtani PCK Pipe Co and PCK Steel (Middle East) FZE to the Group and an independent third party respectively. Land Resumption of Phase III GDC On 20 June 2019, the Group has entered into a land resumption compensation agreement (“Land Resumption Compensation Agreement”) with Guangzhou City Panyu District Land Development Centre*（廣州市番禺區土地開發中心）(“GPDLDC”), pursuant to which GPDLDC would resume, and the Group would sell the land of Phase III GDC at the final compensation of RMB1,524,628,500 (according to the final valuation report). The land resumption contemplated under the Land Resumption Compensation Agreement were approved by the Shareholders at the extraordinary general meeting held on 28 November 2019. Gain on resumption of RMB352.5 million was recorded in other income and gains for the year ended 31 December 2019. Order Status In 2019, the Group received new orders of approximately 341,000 tonnes of welded steel pipes and most orders were received from domestic customers. The Group has received some sizeable orders like orders from China Petroleum & Chemical Corporation （中國石油化工股份有限公司）(“Sinopec”), and Guangxi Natural Gas Pipe Project. The Group delivered approximately 327,000 tonnes of welded steel pipes during 2019. The Group’s joint venture company Al-Qahtani Pck Pipe Company (“AHQ”) (the “JV Company”) in Saudi Arabia has also been awarded a new order of steel pipes from Saudi Arabian Oil Company (“Saudi Aramco”) for supplying approximately 26,248 tons of steel pipes for its Saudi Aramco Marjan Project. The JV Company enabled the Group to expand its market shares in Saudi Arabia and neighboring countries. LSAW Steel Pipes The Group is one of the largest LSAW steel pipe manufacturers and exporters in the PRC. LSAW steel pipe was the largest source of revenue of the Group and accounted for approximately 87.9% of The Group’s total steel pipe revenue for the year ended 31 December 2019. For the year ended 31 December 2019, revenue from the sales and manufacturing service of LSAW steel pipes amounted to approximately RMB835.3 million and RMB167.9 million, respectively, representing an increase of approximately 41.3% and a decrease of 14.2%, respectively, as compared to that for the year ended 31 December 2018. The net increase in sales of LSAW steel pipes was mainly due to the increase in domestic orders as the major oil and gas projects in the PRC have been recovered in 2019. SSAW Steel Pipes The Group’s SSAW steel pipes produced in The Group’s plant in Lianyungang use the pre-welding and precision welding SSAW technique, which is the most advanced standard among all SSAW technologies. Revenue from the sales and manufacturing service of SSAW steel pipes amounted to approximately RMB29.6 million and RMB52.3 million respectively. The total revenue from SSAW steel pipes accounted for approximately 7.2% of the total steel pipe revenue for the year ended 31 December 2019, representing a decrease of approximately 57.6% as compared to that for the year ended 31 December 2018. The decrease in sales of SSAW steel pipes was mainly due to decrease in construction projects during the year. ERW Steel Pipes Competition in the market of ERW steel pipes has been very keen due to its relatively low technical and standardised entry requirements. For the year ended 31 December 2019, revenue from the sales and manufacturing service of ERW steel pipes amounted to approximately RMB7.8 million and RMB62 thousand, respectively. The total revenue from ERW steel pipes accounted for approximately 0.7% of the total steel pipe revenue for the year ended 31 December 2019, representing a decrease of approximately 75.0% compared to that for the year ended 31 December 2018. The decrease in sales of ERW steel pipes was mainly due to removal of ERW production line at Panyu production site during the year. Prospects: Looking forward, the PRC government officially established China Oil & Gas Pipeline Network Corporation*（國家石油天然氣管網集團有限公司）(the “Pipe China”), marking a milestone in the market-oriented reform of the operation mechanism on oil and gas pipeline network. The establishment of the Pipe China will help straighten out the gas industry chain and systematically plan and accelerate the construction of pipelines and other infrastructure, which in turn will drive demand for related equipment. It is expected that the development of natural gas network will generate market demand for related equipment worth over RMB300 billion. The PRC government is expected to strengthen policy regulation after the end of the COVID-19 epidemic, in order to achieve the economic and social development goals for this year. As an important force to maintain the stable growth, more efforts will focus on infrastructure investment. Various ministries and commissions including National Development and Reform Commission, Ministry of Transport and National Energy Administration will take efforts to expand effective investment, speed up approvals and bidding, orderly promote project resumption and start-up and continue to optimize the rolling pipeline project. Under the 13th Five-Year Plan, China ushered in a stage of vigorous development in construction of natural gas pipeline networks. As it is stated in the Medium to Long Term Oil and Gas Pipeline Networks Planning（《中長期油氣管網規劃》）published by the National Development and Reform Commission of the People’s Republic of China, China will strive to strengthen the land and sea linkage as well as onshore and offshore interaction, consolidate and improve the northwest, northeast, southwest and offshore channels for oil and gas import, and promote energy cooperation with countries and regions along the “Belt and Road Initiative”, thereby forming a preliminary layout with balanced distribution of onshore and offshore channels by 2025. Besides, China will strengthen the infrastructure construction of natural gas pipeline networks by following the principle of transmitting gas from the west to the east and from the north to the south, and bringing gas from offshore, so as to establish natural gas infrastructure networks featured by “interconnection of backbone networks with regional networks” by 2025. Next year will be the kick off year of the 14th Five-Year Plan. It is believed that development and deployment of pipeline networks will be intensified, and natural gas sector is projected to become the fastest growing energy sector by reaching a growth rate of 9.40%, completely outmatches those of other energy sectors. It is expected that investment scale of trunk pipelines for the period from 2019 to 2025 will be extensive. According to the 13th Five-Year Plan and the 14th Five-Year Plan, during the period from 2019 to 2020 and the period from 2021 to 2025, the planned construction length of natural gas pipelines in China will amount to 28,000 kilometers and 59,000 kilometers, respectively, and construction investment for newly constructed trunk pipelines will amount to RMB370.4 billion and RMB780.6 billion, respectively (in aggregate of RMB1,151 billion). The PRC government also plans to promote the integrated development of natural gas and renewable energy with implementing natural gas integrated development demonstration projects in Sichuan, Jiangsu, Guangdong and other regions; promote gasification projects in key areas for air pollution prevention and treatment in Beijing-Tianjin-Hebei Region; accelerate oil and gas pipeline construction in key areas and regions with low gasification rates; advance the construction of auxiliary transmission pipelines of shale gas and other unconventional natural gas. The main natural gas pipelines currently planned and under construction in China include the Xinjiang-Guangdong-Zhejiang Pipeline, the Shaanxi-Beijing Pipeline (Line IV), the Sino-Russian Natural Gas Pipeline and the west-East Gas Pipeline (Line IV), which is expected to generate a total demand for steel pipes of approximately 8 million tons in the next 2-3 years. Since steel pipes account for the major part of the pipes, it is estimated that the increase in steel pipe demand driven by the construction of the four pipelines will be approximately RMB30 to 40 billion. In the future, The Group will proactively develop and expand The Group’s customer bases both domestically and internationally. For domestic market, in view of the state’s promotion of natural gas utilization and acceleration of infrastructure projects, a rebound in demand for steel pipes is expected. According to the plan of the state, the lengths of crude oil pipelines, refined oil pipelines and natural gas pipelines will reach 32,000 kilometers, 33,000 kilometers and 104,000 kilometers respectively by 2020. And the total length of oil and gas pipeline network will reach 240,000 kilometers, the network coverage will be further expanded, the network structure will be further optimized and the storage and transmission capability will be significantly improved by 2025. During the plan period, six new crude oil pipelines and eight new refined oil pipelines are planned to be constructed, which will be a golden era for the development of oil and gas pipelines. The Group believes that the above-mentioned projects and policies are major opportunities for the steel pipe manufacturing industry, and the Company will grab the opportunities to improve the sales. In view of The Group’s long-term strategic target to become a global leading steel pipe manufacturer, the Group will seize possible opportunities of oil and gas development projects to expand The Group’s customer base and market share through engaging in more global oil and gas projects and will also continue to leverage its strengths in the steel pipe industry to obtain more orders.

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