Zhongyu Gas Bucking The Trend In 2020 With A Low-carbon Economy Conducive To Future Growth

In the past year, the global economy was hardly hit by the impact of COVID-19. In the first quarter of 2020, various localities suspended work and production due to the pandemic, resulting in a sharp decrease in industrial and commercial gas demand. However, after the resumption of work in full swing, the upstream price reduction policy was basically completed, and the retail prices of natural gas began to rise in some provinces, leading to a rebound in demand from industrial and commercial users and a further rise in the spread. Coupled with the surge in natural gas demand during the heating peak season in the fourth quarter, the gas segment was not impacted as a whole in 2020 and maintained a stable development.

Breaking through value-added services as a new driver of growth in the year against the adverse market trend

Zhongyu Gas is a pioneer in the gas industry. Since its establishment in 2002, Zhongyu Gas has always adhered to the philosophy of "developing clean energy to achieve a better life," and endeavored to promote resources optimization and environmental improvement in the regions they serve through the optimization of energy structure in the operating area.

In 2020, the PRC government has made continuous efforts to promote environmental policies such as clean energy heating plan and the "Three-Year Action Plan for Winning the Blue Sky War" and other environmental pollution controls. The natural gas industry continued to grow against the trend. At the same time, affected by the policy, the spread of unit price of residential natural gas prices has widened, and the price elasticity has increased under the seasonal price adjustment mechanism, which is also conducive to reducing the gas consumption cost of downstream enterprises, continuing to bring business opportunities to Zhongyu Gas.

The Group exploited new business opportunities under a complex and ever changing development environment, swiftly planned the development strategy of "one body, three wings" in 2020, eventually achieving growth in both revenue and profit against the adverse trend. In 2020, Zhongyu Gas recorded a turnover of approximately HK $8,544 million, representing a year-on-year increase of 4.9%; profit attributable to owners of the Group was approximately HK $1,057 million, representing a year-on-year increase of 145.7%.

With the three-year rapid promotion of the "coal-to-gas" project in Beijing-Tianjin-Hebei and its surrounding areas and initial achievements in air governance, the penetration rate of users in the original "2 + 26 + 8" provinces and municipalities has increased significantly. The sustainability of the profit growth model was challenged, which focuses on residential connection among city gas enterprises in the downstream market of the natural gas industry .It has become the inevitable choice for enterprises to innovate their business ideas through exploring the market by providing value-added services with light assets and high gross profit margin.

Since 2017, Zhongyu Gas has made great efforts to build a value-added business segment and established its own kitchen electric brand "Zhongyu Phoenix." In 2020, Zhongyu Gas strengthened its promotion efforts of "Zhongyu Phoenix" to improve the retail brand awareness in the regions it operates by expanding its product portfolio and enhancing its brand awareness. As at the end of 2020, the turnover of the value-added gas services segment of Zhongyu recorded HK $636 million, representing a year-on-year increase of 54.2%. To date, Zhongyu Gas Service Company has 18,777 industrial customers and 3.96 million residential users. With the growth of customer base and formation of brand effect, the turnover from sales of stoves and other related services by Zhongyu Gas Service Company continued to grow. It is expected that it will be a growth driver of Zhongyu Gas in the coming years.

Zhongyu Gas under the Layout of "One Body, Three Wings" to Embrace Industry Opportunities

2021 marks the beginning of the 14th Five-Year Plan when the gas industry welcomed a number of favorable policies. In 2021, the No.1 Central Document proposed to "promote the transportation of gas to the rural areas and support the construction of safe and reliable rural gas storage stations and micropipe network gas supply systems." Unlike "coal to gas" in 2017, which aimed to promote air quality and improve farmers 'living standards, the proposal to "promote the transfer of gas to the rural areas" is one of the important measures to fully implement the rural vitalization strategy and strengthen rural infrastructure construction after China has been fully lifted out of poverty, which implies significant industrial investment opportunities.

At the same time, in the 14th Five-Year Plan period, China will continue to push forward "increasing gas and reducing coal," create a new development approach whereby domestic and foreign markets can complement each other, and promote the target of "carbon neutrality", making green transformation of energy more urgent. Benefiting from the clean energy related policies, the gas industry will embrace important development opportunities, and Zhongyu Gas will also benefit from such opportunities.

To seize the market opportunities, Zhongyu Gas launched the "One Body, Three Wings" strategy just in time. In particular, "One Body" refers to the enhancement of customer service and emphasis on the civil industrial and commercial customer service system by rooted in the core urban gas business to win market recognition through innovative and personalized service in the whole process; the "Three Wings" covers "Internet +" and new retail markets to explore online sales; vigorously promoting businesses related to distributed energy and intelligent power grid and enhance gas source protection and energy trading.

In recent years, with the explosive growth of infrastructure in the urban gas industry, it has become a general trend for urban gas management to implement digital and intelligent transformation, thereby optimizing the supply and industrial chain and improving the economic benefits of enterprises. "Internet +" and New Retail, as one "wing" of the "Three Wings," have achieved significant progress. In April 2020, Zhongyu Gas launched a new retail platform, Zhongyu iFamille, to provide gas-related services and products as well as household products for residential customers, completely upgrading the service to a "new retail model." Zhongyu iFamille not only moves the sales of products such as Zhongyu Phoenix from "offline" to "online," but also establishes a brand-new service collaboration and supply chain system by introducing other merchants and connecting with the "cloud" commodity library, helping Zhongyu Gas to further integrate into customers' daily lives to enhance customer stickiness.

With advent of the low-carbon economic era and promotion of policies such as the introduction of gas to rural areas, China's energy structure will continue to transform and upgrade. During the "14th Five-Year Plan" period, renewable energy will become the main source of energy increment, and comprehensive energy services will embrace great opportunities. Energy enterprises are also taking advantage of the trend of digitalization and intelligentization to build integrated energy solutions. Leveraging the favorable national policy on "Internet +" smart energy, Zhongyu will vigorously promote distributed energy and smart grid related businesses. The Group will actively develop various new projects such as photovoltaic power generation, ground source heat pump, cold storage facilities, charging piles and charging stations for new energy vehicles.

In addition, Zhongyu Gas will also adopt the strategy of integrated industry chain, actively respond to market changes after establishment of the national pipeline network companies and promote gas source protection and energy trade. With a strategic focusing on the future, the Group will not only focus on the planned direction of policy energy reform, but also connect the upstream and downstream links of the value chain and support the industry's development towards the energy markets of developed countries and control the risks to middle and downstream enterprises of natural gas.

To closely grasp the development trend of the industry, Zhongyu Gas will adhere to the operating principles of "market-oriented, customer-oriented and economic efficiency-oriented," continuing to strengthen the core operation position of the urban gas business; the Company will strengthen the value-added services to the existing customers of the new retail segment and promote new business to them, and carry out supply chain resources integration, service integration and community sales; and integrate related products of downstream users to carry out cross-industry commercial cooperation. Further enhancing the bargaining power of resources procurement and Group's ability to supplement and balance gas volume and gas price, as well as optimizing gas source structure and related cost structure, the Company strives to become the most valuable integrated energy service provider, promotes the high-quality development of the "One Body, Three Wings" development strategy and returns the society and the public with excellent performance.

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