Hong Kong, September 01, 2017 -- Moody's Investors Service says that Beijing Enterprises Holdings Limited's
(BEHL) 2017 interim results are in line with expectations and and support
its Baa1 issuer rating and the stable outlook.
"BEHL's overall results in first half 2017 are in line with our expectation.
Its regulated utility operations in piped gas, water treatment and
waste treatment maintained a steady performance, and its declining
beer brewery business begin to stabilize," says Ada Li, a
Moody's Vice President and Senior Analyst.
Moody's notes the 2.9% decline in reported revenue year-on-year
was also driven by a 1.8% depreciation of the RMB against
the HKD over the same period.
BEHL's reported EBIT of HKD5.6 billion -- excluding
corporate expenses, 63% was derived from its gas-related
business, 15% from its water treatment services, 14%
from its brewery operations, and is 9% from its waste treatment
division.
BEHL's gas operations reported a 4.9% year-on-year
decline in revenue, but also an improved EBIT totaling HKD3.5
billion. The revenue decline was a combination of exchange rate
changes and a 1.2% reduction in gas sales volumes due to
a warmer winter over the same period.
The segment's improved EBIT was in turn a result of the successful
maintenance of per unit fixed dollar margins in city gas distribution,
and improved results from long-distance gas transmission.
This development translated into a wider segment gross EBIT margin of
19.1% compared with 15.3%.
BEHL's water operations -- operated through its 44%-owned
associate, Beijing Enterprise Water Group (BE Water) --
reported 16.2% growth in revenue to HKD9.1 billion
and 18.6% growth in EBIT to HKD3.3 billion year-on-year.
The improvements were the combined result of new build-operate-transport
(BOT) construction projects and newly ramped-up water concessions
during the year.
BEHL's waste treatment segment mainly consists of German waste-to-energy
company EEW Holdings GmbH, which was consolidated in March 2016.
The segment, including other onshore waste treatment operations,
contributed HKD489 million in EBIT in first half 2017.
The decline in BEHL's beer brewery operations slowed in first half 2017,
as competition stabilized, and the segment reported a 2.2%
year-on-year reduction in EBIT to HKD769 million.
Moody's expects BEHL's regulated utilities businesses in gas distribution,
water treatment and waste treatment will continue to benefit from supportive
government policies, as a result of rising environmental awareness
across China.
Moody's views the reduction in benchmark city-gate natural
gas prices by the National Development and Reform Commission (NDRC),
effective 1 September 2017, is will stimulate natural gas consumption,
whilst BEHL has an established track record in timely cost-pass
through to non-residential customers.
The company's pro-rata consolidated debt position rose to HKD80.5
billion, up 14.4% from end-2016, after
the group's investment in a 20% stake in Verknechonskneftegaz
(V-gaz) for USD1.1 billion completed in June 2017.
Moody's estimates BEHL's end-2017 pro-rata consolidated
adjusted debt/EBITDA to remain steady at 7x. BEHL's adjusted debt/book
capitalization rose to 52% as of end-June 2017 from 50%
at end-2016, within the current downgrade trigger of debt/book
capitalization over 60%.
The principal methodology used in this rating was Investment Holding Companies
and Conglomerates published in December 2015. Please see the Rating
Methodologies page on www.moodys.com for a copy of this
methodology.
The ratings were assigned by evaluating factors that Moody's considers
relevant to the credit profile of BEHL, such as the company's:
(i) overall business risks and individual business segments' competitive
position; (ii) combined capital structure and financial risks;
(iii) projected performance over the near to intermediate term; and
(iv) management's track record and tolerance for risk. Moody's
compared these attributes against other issuers both within and outside
Beijing Enterprises Holdings Ltd.'s core industry and believes
BEHL's ratings are comparable to those of other issuers with similar credit
risk.
The group's key cash flow generators, including piped gas operations,
brewery operations, as well as sewage and water treatment services,
have standalone operating profiles in the Baa to Ba range. To arrive
at these estimates, we use the published rating methodology for
the relevant industry, if available, and compare this against
other rated issuers, from both within and outside the respective
businesses' core industries. The final ratings reflect the consolidated
credit quality of its business portfolio.
Beijing Enterprises Holdings Limited (BEHL) is 61.96% controlled
by Beijing Enterprises Group Company Limited (BE Group), which is
in turn 100% owned by the Beijing Municipal Government and supervised
by the Beijing State-owned Assets Supervision and Administration
Commission.
BEHL is an investment holding company. It operates three business
segments across China: piped gas operations, brewery operations,
as well as equity investments in sewage and water treatment services.
At end-2016, BEHL reported HKD8.1 billion in profit
before tax—excluding corporate expenses—of which, 70%
were from gas-related businesses, 6% from brewery,
7% from waste treatment, and 17% from sewage and water
treatment services.
This publication does not announce a credit rating action. For
any credit ratings referenced in this publication, please see the
ratings tab on the issuer/entity page on www.moodys.com
for the most updated credit rating action information and rating history.
Ada Li
Vice President - Senior Analyst
Project & Infrastructure Finance
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Terry Fanous
MD-Public Proj & Infstr Fin
Project & Infrastructure Finance
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077