China Qinfa profit up 61% to CNY333mn

Well developed vertical integration of supply chain allowed the group to capture market opportunities in booming Chinese economy.

China Qinfa Group Limited (“Qinfa Group”), a leading private integrated coal operator in China, announced its unaudited interim results for the six months ended 30 June 2011.

Qinfa Group achieved encouraging results in the first half of 2011 with a turnover of RMB4,070.2 million, a growth of 46.1% when compared to the corresponding period last year. The gross profit increased 22.6% to RMB507.8 million from RMB414.1 million during the same period in 2010, principally because of the increase in the coal handling and trading volume. The overall gross profit margin remained stable at approximately 10-12% over the past three years. Profit attributable to the equity shareholders was RMB333.2 million, a year-on-year increase of 61.3%.

Excluding the amount of bargain purchase gain of 26.9 million on the acquisition of 32% equity interest in Huameiao Energy, the profit attributable to the equity shareholders of the Company would have been RMB306.3 million, representing a 60.4% year-on-year growth. Basic and diluted earnings per share were at RMB32 cents respectively.

The Board recommends a bonus issue of shares on the basis of one bonus share for every one existing share held by the shareholders whose names are on the register of members on 10 October 2011. The proposed bonus issue is pending for shareholders’ approval.

Ms Wang Jianfei, Chief Executive Officer of Qinfa Group, said, “Qinfa Group has been striving to consolidate and strengthen the vertical integration of the entire supply chain in order to expand its upstream operation and increase the volume of coal production through our own capacity. During the period under review, the expansion of the customer base and increase in revenue with higher profit margin clearly validated this strategy and we expect more revenue will be generated from our self-produced coal in the future”.

Looking ahead, it is optimistic about the future of the coal sector in China mainly due to the high growth of China’s economy and the coal production and supply constraints as a result of transportation bottlenecks. Transportation bottlenecks are attributable to the mismatch between the development of the railway network and geographical change in the new production capacity in China. Consolidation and suspension of operation of small coal mines under the 12th Five-Year Plan will cause a further reduction in supply of coal. On the other hand, it is expected that coal demand will grow moderately due to the government policy in restricting energy intensive industries and encouraging energy saving programmes. Urbanisation and the development policies of the Western region in China would accelerate the growth in the demand for coal in the short and medium term. Furthermore, the global thermal coal prices are expected to remain at elevated levels in 2011. The demand from China and India are expected to continue to remain strong. And the earthquake and tsunami in Japan in March 2011, alerted the public awareness that nuclear electricity may not be safe, which is expected to be a positive factor for the coal industry with increasing use of coal in the energy generation in future.

According to a China Qinfa report, the Group has been utilising its competitive advantages driven by its solid vertical integration strategy, continuous expansion and improved business model. Its production and logistics capacity is to be further boosted by the operation of Zhuhai Terminal, the well-established coal supply chain along Daqin Railway and the acquisition of coal mines from Huameiao Energy. Thus the Group believes that its coal operation and business will continue to grow and capture the above-mentioned market opportunities.

Ms Wang Jianfei concluded, “To increase our competence and competiveness, the Group not only continues to strengthen the vertical integration of its supply chain and logistic facilities, but also actively explores and seeks new opportunities of any acquisition of upstream resources or leasing of logistic facilities for business expansion with the aim to optimize returns to our shareholders and secure its leading market position as an integrated coal operator.”