China's Kunlun Energy Surges After Asset Boost in Expansion Push

  • Move combines commercial LNG distribution with retail sales
  • Expanded company poised to compete with private rivals

Kunlun Energy Co. rose the most in more than seven months after its state-owned parent said it would inject assets to expand the Chinese natural gas company’s reach from commercial sales of LNG to retail distribution in cities.

Kunlun gained as much as 9.2 percent in Hong Kong, the most since April 13. The stock climbed 3.4 percent to HK$6.95 as of 11:26 a.m., compared with a 1 percent gain in the city’s benchmark Hang Seng Index.

“The asset injection is a big boost to Kunlun’s share performance as it provides Kunlun direct access to city-gas distribution, one of the fastest growing sectors in energy,” said Shi Yan, an analyst at UOB Kay Hian Ltd. in Shanghai, who has a buy recommendation for the shares.

PetroChina Co., the country’s biggest listed oil and gas producer, agreed to shift its wholly-owned unit PetroChina Kunlun Gas Co. into Kunlun Energy, the company said in a statement to the Hong Kong stock exchange Wednesday, without providing a valuation. The asset reshuffle will help Kunlun Energy, which focuses on LNG distribution, expand its business into city-gas sales and compete with private rivals including China Gas Holdings Ltd. and ENN Energy Holdings Ltd.

Kunlun Gas could be worth between 10 billion yuan ($1.6 billion) and 20 billion yuan, based on a multiple of one or two times of value of its assets of about 10 billion yuan, Shi said.

Kunlun’s shares lost 51 percent in the past two years as PetroChina’s plan to combine the companies was derailed by government graft probes that snared two Kunlun Energy chairmen in 2013. ENN Energy lost 23 percent over the same period while China Gas gained 24 percent.

Kunlun Energy is PetroChina’s main commercial gas supplier in China, while Kunlun Gas distributes fuel to households in more than 100 Chinese cities.

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