Diversified utilities structure integrating clean energy businesses achieves stable and sustainable growth
HONG KONG — Following the introduction of major environmental policies by the government, many clean energy companies in China have strived to attain a favorable market position and the momentum that can truly achieve the effective development of “sustainable energy”. Among these clean energy suppliers, Beijing Enterprises Holdings Limited (“BEHL”; 392.HK) has implemented an outstanding business model, with its subsidiaries engaged in three major operations of public utilities: gas, water and solid waste treatment. BEHL’s sophisticated management and industry-leading business scale and network in China and overseas enables it to provide comprehensive services and obtain access to different income sources. At the same time, its position as a leading public facilities operator in China in cooperation with municipal governments enables it to maintain a greater diversity of business and higher flexibility, so that the company can achieve long-term stable growth.
BEHL’s diverse income sources help it realize long-term stable development
BEHL regards clean energy as one of the core business areas of public utilities. It has built a comprehensive business mix comprising public utilities, mainly including gas, water and solid waste treatment, as well as beer (Yanjing Brewery), which diversifies its income and profit sources, mitigates the influences of related industrial policies on a particular industry as well as short-term fluctuations while it consolidates the fundamentals of its businesses and maintains steady business growth.
Upgraded business network brings stable profit
BEHL’s scale of business mainly spans the entire urban area of Beijing and the company is actively extending its reach to the surrounding counties and districts through the largest city gas company in China, Beijing Gas. The diverse operations encompass household cooking, heating, cooling, power generation, combustion engine vehicle and industrial applications. In 2016, its gas sales volume totaled 14.38 billion cubic meters. Moreover China Gas, one of the largest cross-regional gas providers in China invested in and owned by BEHL, runs operations across 300 cities and districts in 25 provinces, autonomous regions and municipalities in China as well as overseas. In the first half of 2017, China Gas achieved a gas sales volume of 4.81 billion cubic meters, which complements the Beijing Gas’s focus on a single market, Beijing, and contributes a stable profit stream to the Group.
Another company that BEHL has invested in and owns, PetroChina Beijing Gas Pipeline Co., Ltd., is actively engaged in the construction of the No.4 Shaanxi-Beijing Pipeline with a designed gas transmission volume of 25 billion cubic meters a year. Upon completion, the total gas transmission volume of the Shaanxi-Beijing Pipeline is expected to increase to 70 billion cubic meters a year, which ensures room for sustainable growth of gas transmission volume of the company, thereby generating a stable income and a profit contribution in the long run.
Coal-to-gas conversion speeds up development of gas distribution business
Following the recent implementation of the “2017 Prevention of Air Pollution Program for Beijing, Tianjin, Hebei and the Surrounding Areas”, the prevention of smog and ensuring clean air have become major priorities of Beijing and municipal governments in the coming years. Municipal governments have been ordered to accelerate coal-to-gas conversion facilities in Beijing suburbs and nearby villages. In 2017, the targets of steam tonnage and number of villages utilizing coal-to-gas facilities have been substantially increased, so the number of piped gas households and residents using gas for heating in the pan-Beijing area should rapidly increase. This trend, in turn, reduces the proportion of gas sales volume for power generation in the long-term, and ultimately helps to achieve the sales target of 20 billion cubic meters in the pan-Beijing area by 2020.
Income and profit of BE Water recorded double digit growth after introduction of the “Ten Provisions in the Water Industry” national policy
The active implementation of the environmental policies “Ten Provisions in the Water Industry” and the PPP model in China has boosted momentum for prosperous growth for BE Water (371.HK) under BEHL. Its comprehensive water operations span a wide range of professional fields including the urban water business, integrated renovation of the water environment, membrane technology and industrial wastewater treatment, seawater desalination, technological services and more. Its projects cover 25 provinces, municipalities and autonomous regions in China, as well as reaching into overseas countries including Singapore, Malaysia, Portugal, etc. As of 2016, it has already participated in 452 water plants which are or will soon be in operation, with a total designed daily capacity of approximately 27 million tons. The operating plants supply around 6 million tons of water a day, and around 11 million tons of recycled wastewater and reclaimed water.
BE Water’s professional services have gained the favorable recognition in both the industry and the government, which has contributed to its securing a number of large water environment renovation projects. Highlights here include river regulation projects in some river sections of Beijing Tongzhou Liangshuihe, and in Xiaotaihouhe, where the world’s largest-ever Universal Studio will be located, with the aim to create a breakthrough in water environment management for the Beijing-Tianjin-Hebei region. Driven by its large-scale and diverse businesses, BE Water achieved an annual revenue of HK$17.35 billion in 2016, representing a year-on-year growth of 29%. Profit attributable to shareholders amounted to HK$3.23 billion, a year-on-year increase of 31%. The rapid double-digit growth of both revenue and profit should add greater impetus to BEHL’s growth momentum in the future.
BEHL turns challenges into opportunities and develops more sophisticated solid waste technology application
BEHL has taken the initiative to grasp the early opportunities in the solid waste treatment industry following the launch of the PRC’s environmental protection policies such as the Thirteenth Five-Year Plan. Through power generation by incineration of household waste, treatment of hazardous waste, medical waste, sludge and urban and rural hygiene management businesses, BEHL efficiently processes over 10 million tons of household waste a year, reduces greenhouse gas emissions by millions of tons, provides power and thermal supply for approximately 1.4 million local and overseas households and enterprises and handles nearly 300,000 tons of hazardous waste a year. This performance clearly demonstrates how BEHL has further developed a diversified public utilities model facilitating the optimization of its revenue and profit structure.
Meanwhile, riding on the key strategic direction of “Going Global” set by the government, BEHL has set its sights on overseas markets. In March 2016, BEHL acquired EEW, the only power generation company in Germany and Europe that focuses on energy generated from waste, for EUR1.438 billion. Through this acquisition, BEHL has also acquired the solid waste treatment technology which was developed by the German company over the last half-century starting in the 1960s, hence bringing BEHL a distinctive industry advantage.