Shares in ENN Energy Holdings Ltd. registered their worst-ever decline after the Chinese gas distributor posted weaker-than-expected earnings and warned that sales would drop this year as China’s economy loses steam.
Although first-half net income rose 7.3% on the year to 3.33 billion yuan ($457 million), it missed forecasts by a wide margin after gas sales to power plants and property companies unexpectedly fell. ENN’s stock in Hong Kong dropped as much as 19% to its lowest since March 2020.
The company said the quantity of gas it sells over the full-year could fall 5%, after previously guiding that volumes would increase by 10%. It also said it expects its core profit for the year to drop by the same amount.
The cut to retail gas volumes “has taken us by surprise as there was no indication prior to the results of well-below industry performance,” Citigroup Inc. said in a note. The bank was among those that downgraded the stock, which was the worst performer on the Hang Seng Index.
Uneven Recovery
ENN blamed China’s uneven economic recovery and relatively high gas procurement costs for the earnings miss and warned that “China’s export growth will likely be constrained as the world economy slows down,” according to an exchange filling on Thursday.
At a briefing on Friday, the company said it planned to raise prices to offset the drop in volumes, and that it hopes the Chinese government’s efforts to stimulate the economy will bolster industrial demand.
ENN said it expects global gas supplies to remain ample, with Asian spot prices for liquefied natural gas to stay within a range of $10 to $18 per million British thermal unit over the rest of the year, taking into account possible supply disruptions in Australia. The market currently trades around $14 per mmbtu.
The company said profit from its LNG business would likely reach 1.5 billion yuan this year, from 2 billion yuan in 2022.
(Updates with price forecast in penultimate paragraph)
