China Natural Gas Announces Fourth Quarter and Full Year 2006 Financial Results

NEW YORK, April 17 /PRNewswire-FirstCall/ -- China Natural Gas, Inc. (OTC Bulletin Board: CHNG - News), one of the leading providers of pipeline natural gas for industrial, commercial and residential use and compressed natural gas (CNG) for vehicular fuel in Xi'an, China, today announced its fourth quarter and full year financial results for the fiscal year ended December 31, 2006.
    Financial Highlights for the Fourth Quarter 2006:
-- Revenue increased 218% to $6.8 million, driven by the
construction of an additional 14 CNG filling stations
in the Xian area in 2006 and
continued growth of pipeline customers;
-- Gross profit up 189% to $3.3 million;
-- Income from operations increased 286% to $2.3 million;
-- Net income increased 271% to $2.1 million; and
-- Net income per diluted share increased 304% to $0.08
per share.

"We are very pleased with our performance through the fourth quarter of 2006, which exceeded our expectations by all measures," stated Mr. Qinan Ji, Chairman and CEO of China Natural Gas.

    Financial Highlights for Fiscal Year 2006:
-- Revenues increased 288% to $18.8 million;
-- Gross profit grew 272% to $9.1 million;
-- Income from operations increased 343% to $6.5
million; and
-- Net income increased 310% to $6.1 million or
$0.23 per share.

"We made great progress expanding our business in 2006, ending the year with seventeen CNG filling stations and 75,000 residential, commercial and industrial pipeline customers. I'd like to thank all of our employees for their outstanding effort," said Mr. Qinan Ji, Chairman and CEO of China Natural Gas. "As the sole authorized provider of pipeline natural gas to customers in our service area, and with 15 new company-owned filling stations slated to begin construction by the end of 2007, we are truly in a unique and enviable competitive position."

Revenue for fiscal year 2006 increased 288% to $18.8 million from $4.9 million for fiscal year 2005. The sharp increase in revenue was due primarily to the contribution of 14 newly constructed CNG filling stations during 2006 and a material increase in the number of residential, industrial and commercial pipeline customers compared to 2005. Revenue from sales of natural gas increased 713% to $13.7 million from $1.7 million in the prior year. Construction and installation revenue increased 62% to $5.1 million from $3.2 million in the fiscal year 2005.

Gross profit for fiscal year 2006 increased 272% to $9.1 million from $2.5 million in 2005. Gross margin decreased 200 basis points to 48.4% from 50.4% in the year 2005, reflecting the significant increase in revenues generated from company-owned CNG filling stations, which generate a lower gross margin than installation and construction revenue. While the Company's overall gross margin declined year over year, gross margin for sales of natural gas, excluding construction and installation revenue, increased to 44.1% from 23.3% in the prior year. Management believes that sales of CNG through its filling stations provide the best opportunity for future revenue and profit growth.

Operating expenses in fiscal year 2006 increased 166% to $2.6 million from $1.0 million, reflecting the construction and operation of 14 new natural gas filling stations during the year, as well as continued expenses related to the identification of future natural gas filling station locations and costs associated with the government licensing and approval process. As a percent of revenue, operating expenses decreased to 13.8% in 2006 from 20.1% in 2005. Operating income increased 343% to $6.5 million from $1.5 million. Operating margin increased substantially by 430 basis points to 34.6% compared to 30.3% in the prior year.

Net income for fiscal year 2006 increased 310% to $6.1 million, or $0.23 per share, compare to $1.5 million, or $0.08 per share, in the fiscal year 2005.

Balance Sheet

As of December 31, 2006, the Company had $5.3 million cash and cash equivalents on hand compared to $675,000 at December 31, 2005.

Fiscal Year 2007 Update

The Company expects to add up to 30,000 new pipeline customers by the end of 2007. Additionally, the Company expects to start construction of an additional 15 CNG filling stations through the remainder of the year.


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