Hong Kong and China Gas Company Limited (HKCG, Stock Code: 3) 2025 Annual Results – Detailed Investor Update

Key Highlights

• Core operating profit rose 4% to HK\$6.0 billion, while after-tax operating profit increased 2% to HK\$7.5 billion.
• Profit attributable to shareholders was HK\$5.7 billion, holding steady year-on-year, with basic earnings per share at HK30.5 cents.
• Final dividend of HK23 cents per share proposed, bringing the full-year total to HK35 cents per share.
• Strong momentum in green energy businesses: Significant progress in sustainable aviation fuel (SAF), green methanol, and distributed photovoltaic (PV) energy.
• Stable utility business in Hong Kong and Chinese mainland, with resilience despite macro headwinds and sector-specific challenges.
• Strategic capital raising and asset-light strategy through Quasi-REITs products, with cumulative financing of RMB3.5 billion.
• ESG performance upgraded to “AAA” in the Hang Seng Corporate Sustainability Index and “AA” by MSCI.

Financial Performance and Segmental Analysis

Revenue and Profitability

• 2025 revenue: HK\$54,326 million (down 2% year-on-year), reflecting a mild decrease due to adjustments in standard gas tariffs in Hong Kong, cost pass-through improvements on the mainland, and a slowdown in the property market impacting new gas connections.
• Core operating profit reached HK\$6.0 billion (up 4%), and profit attributable to shareholders was HK\$5.7 billion, roughly flat compared to 2024, indicating resilience in underlying operations.
• Other gains, net, totalled HK\$417.6 million (down from HK\$489.4 million), mainly due to exchange losses and absence of prior-year asset impairment charges.
• Total operating expenses decreased by 2% to HK\$46,194 million amid cost controls and operational efficiencies.
• Interest expense fell 13% to HK\$1,971.9 million thanks to lower finance costs and tighter capital expenditure management.

Business Segment Details

Hong Kong Utility Business

• Residential gas consumption grew 2.4% year-on-year, supported by weather factors and new customer acquisition (+19,000 customers, total now 2.06 million).
• Industrial/commercial gas usage fell 2.6% due to ongoing pressure in retail and F&B sectors, partly offset by higher demand from hotels and airport expansion. Overall gas sales volume in Hong Kong remained steady at 27,181 million MJ.
• Investments in gas infrastructure for the Northern Metropolis, with successful early-stage gas supply and plans to accelerate further development, positioning HKCG for future growth in new districts.
• Technology upgrades include smart document review, drone inspection, and AI-powered customer service, with 60% of customer enquiries now handled digitally.

Mainland Utility Business

• Operates 325 city-gas projects, serving 44.27 million customers. Gas sales volume stable at 36.35 billion cubic metres.
• Successful cost pass-through to 90% of residential customers and all industrial/commercial users, raising city-gas dollar margin to RMB0.54 per cubic metre.
• “Gas+” energy services achieved sales of 2.87 billion kWh, supporting additional gas sales and enhancing business mix.
• Signed medium- and long-term gas procurement contracts totaling 15 billion cubic metres and expanded gas storage capacity to 480 million cubic metres, strengthening resource security and cost management.

Water and Environmental Businesses

• Stable growth: Water sales volume up 0.6% to 1.66 billion tonnes; solid waste treatment up 7% to 1.72 million tonnes.
• Recovered 8,000 tonnes of used cooking oil for SAF production and produced 10 million cubic metres of biogas, reinforcing circular economy synergies.
• New value-added services (e.g., direct-piped drinking water) and technological upgrades to drive future profit growth.

Growth Businesses – Renewable Energy, SAF, Green Methanol, Hydrogen Energy

• Renewable Energy:
  • Added 500MW distributed PV capacity, reaching 2.8GW total; PV generation up 36% to 2.48 billion kWh.
  • Power trading volume reached 8.4 billion kWh; energy storage contracts totalled 1.04 million kWh.
  • Issued second and third Quasi-REITs, bringing cumulative AuM to RMB3.5 billion and strengthening asset-light strategy.
• Sustainable Aviation Fuel (EcoCeres):
  • New Malaysian plant commissioned, doubling renewable fuels capacity to 770,000 tonnes per year.
  • Multi-year supply agreement with British Airways, supporting HK’s ambition as a regional SAF hub.
• Green Methanol:
  • VENEX joint venture with Foran Energy; Inner Mongolia plant certified for product carbon footprint, capacity to reach 150,000 tonnes in 2026 and 300,000 tonnes by 2028.
  • New Foshan plant (200,000 tonnes by 2028) will bring total to 500,000 tonnes annually. First large-scale methanol bunkering at Shanghai Port, supply contracts with major Singapore bunker suppliers.
• Hydrogen Energy:
  • Launched HK’s first integrated hydrogen power generator, piloted at the 15th National Games golf competition and construction sites, supporting zero-emissions initiatives.
  • Developing public hydrogen EV charging systems in partnership with Science Park, with pilot projects underway.

Extended Businesses (Towngas Lifestyle)

• Completed first round of strategic financing (US\$45 million) to support smart living services for a market of 130 million people.
• Growth in smart kitchen appliances, insurance, and home AIoT solutions, with product and platform innovation and digitalisation driving sales and operational efficiency.

Balance Sheet, Liquidity, and Capital Structure

• Net current liabilities (including assets held-for-sale) of HK\$14.2 billion, but ample financial resources and undrawn facilities (HK\$37.3 billion) assure liquidity, with management confident in meeting obligations.
• Borrowings: HK\$59.7 billion as at end-2025. Gearing ratio steady at 43%.
• Issued HK\$26.3 billion in medium-term notes with an average tenor of 12.1 years at 3.4% interest, and RMB2.3 billion in notes by Towngas Smart Energy at 3.8% interest.
• Towngas Smart Energy also issued Panda Bonds (RMB1.5 billion) and Quasi-REITs (RMB1.3 billion in 2025), diversifying funding sources.
• Credit ratings remain strong: Moody’s “A1”, S&P “A-”.

ESG and Corporate Governance

• ESG rating upgraded to “AAA” in the Hang Seng Index and to “AA” by MSCI, reflecting robust sustainability practices and leadership in low-carbon transition.
• Continued community engagement through initiatives like the Gas Guardian Care Network and STEAM education.
• Strict compliance with HKEX corporate governance standards; no material auditor qualifications or adverse findings.

Shareholder Matters and Corporate Actions

• Proposed final dividend of HK23 cents per share; total 2025 dividends at HK35 cents per share, subject to approval at the AGM on 1st June 2026.
• No repurchase, sale, or redemption of the Company’s listed securities by HKCG (except for shares bought for the TSEL Share Award Scheme by a subsidiary).

Outlook and Price-Sensitive Information

• HKCG is transitioning into a green energy technology enterprise, with future growth engines in renewable energy, green fuels (SAF, green methanol, hydrogen), and smart living services.
• The launch of China’s 15th Five-Year Plan, new zero-carbon industrial parks, and policy tailwinds for green and low-carbon energy are expected to open up new growth opportunities.
• Management expects continued stable performance from the utility segment, while growth businesses are expected to drive future value, especially as HKCG broadens its capital structure and investor base.
• Risks remain from the mainland property market downturn and macro/geopolitical uncertainties, but the Group’s asset-light strategy, strong financial position, and diversified business model provide resilience.

Potential Price-Moving Catalysts

• Doubling of renewable fuels capacity and new SAF plant in Malaysia positions EcoCeres as a global leader, which could attract strategic investment and rerate the share.
• Successful execution of green methanol growth and supply contracts at major Asian ports, plus regulatory support for marine fuel transition, could open new profit pools.
• Expansion into hydrogen power generation and EV charging is at the cutting edge of the energy transition, with pilot projects potentially scaling rapidly if policy momentum continues.
• Asset-light growth and strategic capital raising via REITs and external investors could boost return on equity and support higher dividend payouts.
• ESG upgrades may trigger increased demand from sustainability-focused funds.

Disclaimer

The information contained in this article is for informational purposes only and does not constitute investment advice. Investors should conduct their own research or consult with professional advisers before making any investment decisions. The author and publisher accept no liability for any actions taken based on the information provided above.

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