Natural Gas • LPG • Value-Added Services

FY2018/19 ANNUAL RESULTS (2018.4.1 – 2019.3.31)

2019.06.21 CONTENTS

Operational Performance • Natural Gas • LPG • Value-added Services

Financial Performance

Future Strategy & Outlook

2 NATURAL GAS

MANAGEMENT DISCUSSION & ANALYSIS

3 New Investments

 Acquired 15 additional city concessions in 6 provinces and autonomous regions, as at 31 March 2019, the Group cumulatively secured a total of 542 piped gas projects with concession rights (including 365 city piped gas projects, 177 township “replacement of coal with gas” projects at county or district levels)

Provinces/Autonomous Cities/Districts Regions/Municipalities

Acquired 15 Heilongjiang Province Acheng District of Harbin City, Jiguan New District of Jixi City, Wuchang City, Anda City, additional city Tailai County, Bin County, Zhaoyuan County, Fangzheng County, Jiansanjiang concessions Inner Mongolia Autonomous Ganqimaodu Industrial Park of Urad Zhong Qi, Dengkou County Region

Hunan Province Huaihua National Agriculture and Technology Zone

Jiangxi Province Nancheng County

Jilin Province Fuyu City

Hubei Province Chongyang County

Further Inner Mongolia Autonomous Increased shareholdings in Hohhot city gas project to 63%, turning the project from a JV to increased Region shareholdings a subsidiary in existing projects Liaoning Province Increased shareholdings in Shenyang city gas project to 46.4%; signed strategic cooperation agreement with the government of Shenyang City to comprehensively promote the use of natural gas in Shenyang city and its surrounding areas 4 Natural Gas – Volume Growth

24,656.4 25,000 24,000 23,000 Volume Growth: 22,000 Period 21,000 Pipelines & Trade 20,000 18,659.3 9,912.0 19,000 2018/19 44.2% 18,000 17,000 2017/18 83.2% 16,000 15,000 6,872.8 2016/17 46.2% 14,000 13,000 12,224.3 12,000 Volume Growth: 11,000 Period 10,000 3,751.0 City and Township Projects 9,000 8,000 2018/19 25.1% 7,000 14,744.4 Natural Gas Sales Volume (million m3) (million Volume Sales Gas Natural 6,000 11,786.5 2017/18 39.1% 5,000 4,000 8,473.3 2016/17 16.2% 3,000 2,000 1,000 0 2016/17 2017/18 2018/19 City & Township Projects Pipelines & Trade 5 Natural Gas – Volume Growth

25,000 % of total Volume growth city & Customer 22,500 3,984.7 township gas volume 2018/19 2017/18

20,000 Residential 27.0% 29.0% 60.1% )

3 City & 17,500 township 7,050.0 Industrial 47.8% 30.1% 47.3% 3,088.9 gas volume 15,000 Commercial 17.1% 22.5% 23.7% CNG/LNG 5,419.6 8.1% -2.5% 1.7% 12,500 2,516.2 Stations 1,929.5 1,193.5 10,000 2,054.1 3,679.3 7,500 1,223.9 Volume Growth

Natural gas gas sales Naturalvolume(million m 1,661.0 5,000 9,912.0 Pipeline Customer 2018/19 2017/18 2016/17 1,203.5 & 6,872.8 Pipelines or 2,500 trading 44.2% 83.2% 46.2% 3,751.0 volume Trading

0 2016/17 2017/18 2018/19 Pipelines & Trade CNG/LNG Commercial Industrial Residential 7 Natural Gas – Effective Connections

New Residential Connections Existing Building Connections/Total 40% Connections in City Projects 3,926,7625,107,836 336%5% 5,000,000 35%

4,500,000 30% 4,000,000

3,500,000 25%

3,000,000 20%

2,500,000 Households 15% 2,000,000

1,500,000 10%

1,000,000 5% 500,000 0% 0

Proactively optimising its connection strategy to promote new connections of existing residential buildings, CGH continues to deliver stable new connections in city gas projects, at the same time, continue to boost its robust growth of new connections in township gas projects. In FY2018/19, the proportion of existing residential connections over total new connections in city gas projects reached 36%.

8 Natural Gas – Customer Breakdown

New Connections (Organic Growth)

FY2018/19 Customer Change from Change FY2017/18 FY2018/19 FY2017/18 Portfolio FY2017/18 from Portfolio Total FY2017/18 Total

Residential 5,107,836 30.1% 3,926,762 29,678,157 20.8% 24,570,321 City Projects 2,716,223 -2.2% 2,777,629 26,137,411 11.6% 23,421,188 RCG* 2,391,613 108.1% 1,149,133 3,540,746 208.1% 1,149,133 Industrial 2,686 15.9% 2,318 12,407 27.6% 9,721 Commercial 30,673 14.3% 26,829 199,637 18.2% 168,964 CNG/LNG - - - 575 -0.9% 580 Stations

RCG *: “Replacement of coal with gas projects in towns and villages in North China”

9 Natural Gas – Tariff & Dollar Margin

City Gas Projects FY2018/19 FY2017/18 Change Customer Tariffs (ex-tax) (RMB / m3) Residential 2.52 2.40 5.0% Industrial 2.65 2.50 6.0% Commercial 2.79 2.60 7.3% CNG/LNG Stations 2.93 2.63 11.4%

Dollar Margins (ex-tax) (RMB / m3) FY2018/19 1HFY2018/19 FY2017/18

Overall Dollar Margin (city gas projects) 0.61 0.625 0.623 Residential 0.44 0.47 0.51 Industrial 0.59 0.59 0.60 Commercial 0.75 0.82 0.78 CNG/LNG Stations 0.91 0.88 0.75

10 Natural Gas – Other Operational Data

FY2018/19 FY2017/18 FY2016/17

Residential City Projects 2,508 2,523 2,540 Connection Fee (RMB per customer) Township Projects 3,010 3,089 -

Urban Population Covered (million) 132.0 123.9 117.1

Household Penetration Rate (City Gas 60.7% 57.2% 53.1% Projects)

11 LIQUEFIED PETROLEUM GAS

MANAGEMENT DISCUSSION & ANALYSIS

12 LPG – Vertical Integration of the Value Chain

Upstream Midstream Downstream End Users

LPG Import LPG Class II Industrial receiving Stations terminals

8 LPG Terminals (Class 1 & 2) LPG Fleet Capacity: 12,600 tonnes Commercial LPG Domestic Bottling Storage Oil Refinery Stations / facilities Retail Points

100 LPG Distribution Projects 3 Over 300,000 m Storage Capacity 1,100 LPG Retail Stores Residential

CGH Core Business Areas CGH Facilities / Customers

China Gas owns:

 8 LPG receiving terminals

 300,000 m3 of LPG storage capacity

 100 LPG distribution projects and 1,100 retail stores

 LPG distribution coverage in 19 provinces in China

13 LPG – Vertical Integration of the Value Chain

Retail: • A more popular clean energy in townships and villages LPG Sales Volume Breakdown (Tons) where natural gas is not available; • Consolidating retail market through better service, safety standard and quality of goods; • Owning a national call no. “95007”; 4,030,394 3,993,377 4,000,000 3,699,000

3,500,000 1,085,901 1,208,027 1,164,700 3,000,000 Wholesale: • Demand driven, such as rapid growth of the 2,500,000 petrochemical synthesis and processing sector where LPG is used as a raw material; 2,000,000 • Contractual sales accounts for about 60% of the total wholesale volume, so as to effectively avoid LPG price 1,500,000 2,944,493 2,785,350 fluctuation risk; 2,534,300 1,000,000

500,000

0  Further market penetration FY2016/17 FY2017/18 FY2018/19 wholesale retail  Economies of scale  Fully liberalized market  LPG price-setter LPG – Vertical Integration of the Value Chain

Change from FY2018/19 FY2017/18 FY2016/17 FY2017/18 Sales Volume (tonnes) 3,993,377 -0.9% 4,030,394 3,699,000 Wholesale 2,785,350 -5.4% 2,944,493 2,534,300 Retail 1,208,027 11.3% 1,085,901 1,164,700

Sales Revenue (HK$’000) 15,917,100 -0.3% 15,969,830 11,654,633

Core net profit attributable to owners of the Company 101,766 -81.5% 550,836 440,388 (HK$’000)

Core NP Margin (%) 0.6% - 2.8pts 3.4% 3.8%

1. LPG wholesale business recorded a slight year-on-year decrease in sales volume. It was mainly attributable to the control of the Group appropriately exercised over its LPG imports to prevent the effect of the substantial volatility of international LPG purchase price on purchase costs and profit.

2. As the crude oil and LPG prices fell sharply in 2018 Q4, causing sales loss for those LPG purchased before the oil price drop, which was the main reason behind the 81.5% decline in core net profit attributable to the owners of the Company during the period.

15 16 VALUE-ADDED SERVICES

MANAGEMENT DISCUSSION & ANALYSIS

17 Value-added Services – Asset-light Business

Sale and/or delivery of products/services via existing network with 35M+ customers

Gas heaters & kitchen appliances under the brand of Gasbo (中燃宝), such as gas stoves, disinfection cabinet, range hood, etc.

Smart Home

Comprehensive gas insurance Online Sale of water purifier + Sale of air purifier offline

Gas alarm system

Bottled water

Gas corrugated pipes

Maintenance and equipment conversion services

and more…

18 Value-added Services – Asset-light Business

Huge PRC market, High margin, Strong growth

Performance (HK$ millions) Change from Value-added services FY18/19 FY17/18 FY17/18

Revenue 3,903.1 32.5% 2,946.7 Blue Gross profit 1,421.0 42.0% 1,000.6 Ocean GP margin 36.4% 34.0%

Operating profit 1,144.5 47.8% 774.5

OP margin 29.3% 26.3%

Value-added Services

Revenue & profit continue to grow at high double-digit in years

19 FINANCIAL PERFORMANCE

20 Income Statement

HK$ (millions) FY2018/19 % change FY2017/18 Revenue 59,386.1 +12.4% 52,832.0 Gas sales 27,105.7 +19.9% 22,612.9 Connection fees 11,179.3 +25.3% 8,923.7 LPG sales 15,917.1 -0.3% 15,969.8 Value-added services 3,903.1 +32.5% 2,946.7 Construction design and services 1,280.9 -46.2% 2,378.9 Gross profit 14,059.2 +20.5% 11,671.0 EBIT 11,634.1 +20.3% 9,674.4 One-off or non-operational items 73.1 - 266.9

Profit attributable to owners of the Company 8,224.4 +34.9% 6,095.2

EPS - Basic (HK dollars) 1.63 +32.5% 1.23

Core net profit attributable to owners of the Company * 8,151.3* +28.1%* 6,362.0

Dividend per share (HK cents) (full year) 44.0 +25.7% 35.0 Dividend payout ratio (core) 28.0% + 0.7pts 27.3%

* The growth of Core profit attributable to owners of the Company would have increased by more than 28.1% if RMB vs. USD/HK$ didn’t drop by more than 6.3% during this FY2018/19. 21 One-off / non-operational items

HK$ Items Remarks millions 1 Foreign debt proportion remained at low level of 14.7% as at Exchange gain/loss (150.3) 31 March 2019 2 Gain or loss on disposal of For instance: increased shares in a JV (Hohhot city gas project) 445.7 associate/JV/PPE/others from 51% to 63%, which becomes a subsidiary 3 Share of ex loss & option expense attributable to ZY Gas (associate, (159.2) 41.81% of shares)

4 Share based payments (options) (63.1) Fully booked

Total amount 73.1

22 Change of Currencies

Historical exchange rate RMB ：HKD 1.26 1.247 1.24

1.22

1.2

1.168 1.18

1.16

1.14

1.12 29/3/2018 29/03/2019

source： http://www.hkexchangerate.com 23 Balance Sheet

HK$(millions) FY18/19 FY17/18 FY16/17

Total Assets 109,879.7 82,058.0 60,221.8

Total Equity 40,782.4 32,730.1 23,946.6

Shareholder's Equity 35,321.1 28,456.0 20,550.2

Cash 13,482.3 8,537.0 5,242.3

Short-term Bank and Other Borrowings 16,407.5 11,079.3 10,873.3

of which LPG trade finance related facilities 2,240.6 3,614.1 -

Long-term Bank and Other Borrowings 21,491.4 21,293.1 12,745.2

Net Gearing Ratio * 54% 62% 77%

* Excluding the LPG import letter of credit related trade finance

24 Operating Profit Margins

FY2018/19 FY2017/18

Operating profit margin 16.9% 15.5%

Sales of gas 11.0% 10.9%

Gas connection 30.8% 32.7%

Construction design and services 16.5% 17.2%

LPG sales 0.8% 3.2%

Value-added services 29.3% 26.3%

25 Financial Highlights

Core EPS* DPS

1.8 45 44 1.61 1.6 40

35 1.4 35 1.28

1.2 30

1 0.91 25 HK$

HKCents 19.46 0.8 0.75 20 0.66 16.15 0.6 15 0.5 12.06 0.39 0.4 10 8.48

0.22 0.2 0.16 5 3.92 2.2

0 0

* Net of one-off or non-operational items 26 FUTURE STRATEGY & OUTLOOK

27 Future Strategy

 Continue to add 10-20 new city concessions in each year

 Speed up connections to old/existing residential buildings to increase penetration rate

 Strong volume driver: “coal to gas” conversion for industrial and commercial users

 Huge new market for winter heating application: replacement of coal with gas for residential users in towns and villages in 15 provinces in northern China

 Develop the enormous value-added services’ market for more than 35 million existing customers, increasing by 5 million annually

 Vertically integrate LPG value chain and boost LPG assets’ utilization rate

 Explore new businesses, such as, Distributed Energy, Gas Co-generation, Electric Charging Posts and Electricity Distribution etc.

28 Township “coal-to-gas” for heating

 Established strategic partnerships with Tianjin city, Hebei, Shandong, Shanxi, Henan, Shaanxi, Anhui, Yunnan, Hainan, Heilongjiang, Hubei, Jilin, Guizhou, Sichuan and Hunan provinces respectively, and implemented projects, in more than 177 counties or districts, such as “replacement of coal with gas” in towns and villages, conversion of coal-fired boilers to natural-gas-fed in urban areas, natural gas for vehicles, distributed energy resources, natural gas storage facilities and the construction of natural gas pipeline networks and “beautiful countryside”.

 As at 31st March 2019, China Gas has signed contracts to replace coal with natural gas for more than 7 million households in towns/villages, including the 3.54 million households for which the connection works have been completed by March 2019.

 Replacement of coal with natural gas projects in towns and villages will contribute to the Group:

1. A substantial increase in new residential connections, on top of the annual residential connections in 365 existing city gas projects.

2. Continuously grow value-added business by selling wall-hanging gas heaters and kitchen appliances.

3. Replacement of coal with natural gas projects in towns and villages is mainly for winter heating purpose, the average gas consumption per household for heating in winter is about 10 times of the usage by urban household, thus, it will bring substantial growth in natural gas sales in the future.

29 Outlook

FY2018/1 Segment 9 FY2019/20 FY2020/21 (Actual) Gas volume in city & township projects 25.1% 25+% p.a.

Annual residential connections (households) 5,107,836 5,500,000 6,300,000

Sale tonnage of LPG (tons) 3,993,377 4,300,000 5,000,000

Gross profit of value-added service 42.0% 40+% p.a.

30 Conditions intended to be attached to the New Options to be granted

The Board proposes to seek the approval of the Shareholders on the refreshment of the Scheme Mandate Limit, in order to enable the Company to provide more rewards and motivation to its employees and other eligible persons under the Share Option Scheme for their contribution and continuing efforts to promote the interest of the Company and enhance the value of the Shares.

Conditions intended to be attached to the New Options to be granted under the Scheme Mandate Limit, if refreshed:

i. the Group’s audited net profit after tax (before share-based payment expenses) and deduction of net profit after tax attributable to non-controlling interests for any of the financial years ending on or before 31 March 2022 based on the audited consolidated financial statements of the Company amounts to HK$ 14 billion or above; or

ii. if the above condition is not fulfilled, the New Options can still be exercised if the Group’s audited profit after tax (before share-based payment expenses) and deduction of net profit after tax attributable to non-controlling interests for the financial year ending 31 March 2023 based on the audited consolidated financial statements of the Company amounts to HK$15 billion or above; and

the New Options will lapse if none of the above conditions is satisfied.

31 REFERENCE DOCUMENTS

32 Environmental Protection Policies

"Reinforced Measures on Air Pollution Prevention and Control in Beijing-Tianjin- Hebei (2016-2017)"

•issued by the Ministry of Environmental Protection in collaboration with the People's Governments of Beijing, Tianjin and Hebei in June 2016 •promotion of "gas for coal replacement" campaign, designation of coal-free areas •dedicated funding from central government "Measures for the Administration of Special Funds for Air Pollution Prevention and Control"

•issued by the Ministry of Finance and Ministry of Environmental Protection in July 2016 •strengthen the use of special funds for “air pollution prevention and control”

"Implementation Plan for the Reinforced Measures on Air Pollution Prevention and Control in Hebei (2016-2017)"

•issued by the People's Government of Hebei in August 2016

"2017 Work Plan on Air Pollution Prevention and Control in Beijing-Tianjin-Hebei and the Surrounding Areas"

•issued by 4 ministries in collaboration with People's Governments of six provinces and municipalities in Northern China in February 2017 •number of "pollution diffusion belt cities" raised to 28 •shut down of heavily polluting factories in winter

33 Environmental Protection Policies

"Circular of the Central Government on Piloting Winter Cleaning and Heating in Northern China" •issued by 4 ministries in collaboration in May 2017 •support for pilot projects on clean winter heating with central finance •3 years demonstration period. Financial subsidy by the central government according to the scale of the city: 1 billion each year for municipalities, 700 million each year for provincial capital cities, and 500 million each year for prefecture-level cities.

"Priority Working Plan for Comprehensive Management of Air Pollution during Fall and Winter of 2017-2018 in Beijing-Tianjin-Hebei and its Surrounding Areas"

•issued by 10 ministries in collaboration with People's Governments of six provinces and municipalities in Northern China in August 2017 •supervision of “air pollution comprehensive management” work done by the 28 “pollution diffusion belt cities” “Clean Winter Heating Plan for North China (2017-2021)" •Issued by 10 ministries in collaboration in December 2017 •Includes all 15 provinces in north China •by 2021: 70% clean heating coverage in north China, replacing 150 MTs of coal; comprehensive clean heating coverage in “2+26” cities and abolition of all boilers under 35 tons; 80% clean heating coverage in counties and city suburbs and abolition of all boilers under 20 tons; 60% clean heating coverage in rural area

“Three Year Action Plan for Winning the Battle for Blue Sky" •issued by the State Council, highest profile document for air pollution control •Extending air pollution control from “2+26” to the Yangtze River Delta and Fenhe-Weihe Plain •Incremental gas will prioritize residential use and winter heating in areas with severe air pollution; prioritizing Beijing-Tianjin-Hebei and its surrounding area and Fenhe-Weihe Plain in order to realize “the replacement of coal with gas”

34 Subsidy Policies for Township

Subsidies for "coal to gas replacement", in Hebei Province：

 Residential users:

 Installation subsidy, RMB 4,000/household. Provincial government bears RMB 1,000, city and county governments bear the rest RMB 3,000

 Equipment purchase subsidy

 70% reimbursement of purchase of wall-mounted heaters, up to RMB 2,700

 Gas subsidy in winter

 RMB 0.8/cubic meter subsidy for winter heating purpose, up to RMB 960 per year, for 3 years

 Industrial users:

 Subsidy of RMB 100,000 per steam ton for retrofitting coal-fired boilers to gas-fired boilers

35 Disclaimer & Contact

Disclaimer:

Statements in this presentation and handout that are not strictly historical are “forward-looking” statements. Forward-looking statements involve risks and uncertainties, including, but not limited to, continued acceptance of the Company’s product and services in the marketplace, competitive factors, new products and technology changes, the Company’s dependence upon third party suppliers and other risks detailed from time to time in the presentation, handout and other related documents. All the directors of China Gas jointly and severally accept full responsibility for the accuracy of the information contained in these materials and confirm, having made all reasonable inquiries, that to the best of their knowledge, opinions expressed in these materials have been arrived at after due and careful consideration and there are no other facts not contained in these materials, the omission of which would make any statement in these materials misleading. The materials and information in the presentations and other documents are for informational purposes only, and are not an offer or solicitation for the purchase or sale of any securities or financial instruments or to provide any investment service or investment advice.

For investor enquires:

Mr. Frank Li

Tel: +852 2238 0315 l Fax: +852 2287 0633

Email: [email protected]

Website: www.chinagasholdings.com.hk