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), 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.
     About China Natural Gas, Inc.
     China Natural Gas, Inc., ("CHNG"), is the first China-based natural gas
 company publicly traded in the US. It currently owns and operates a 120
 kilometer long compressed natural gas pipeline in Xi'an, China, a fast
 growing Chinese city supported by a population of approximately eight
 million and is the "gateway" to the broad Western regions of China. CHNG
 has three profitable business segments: end user delivery of natural gas
 services to residential, commercial and industrial customers; wholesale
 natural gas to retail natural gas filling stations; and retail natural gas
 at company-owned natural gas filling stations. The city of Xi'an has
 approximately 20,000 Taxis, 3,000 buses and 2,000 special purpose vehicles
 that are powered by compressed natural gas.
     This press release may contain forward-looking statements. These
 statements are based on the current expectations or beliefs of China
 Natural Gas, Inc. management and are subject to a number of factors and
 uncertainties that could cause actual results to differ materially from
 those described in the forward-looking statements, including the
 fluctuation of natural gas prices, the availability of natural gas
 supplies, changes in governmental regulations and/or economic policies.
                     CHINA NATURAL GAS, INC. AND SUBSIDIARY
        CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME
       FOR THE THREE AND TWELVES MONTH PERIODS ENDED DECEMBER 31, 2006 AND
                                      2005
                                   (UNAUDITED)
 
                         For three Month Periods  For the Twelve Month Periods
                            Ended December 31,          Ended December 31,
 
                             2006        2005           2006          2005
 
     Revenue
       Natural gas
        revenue            $5,132,909    $622,137    $13,713,145    $1,687,154
       Construction /
        installation
        revenue             1,670,193   1,514,520      5,115,645     3,163,545
            Total
             revenue        6,803,102   2,136,657     18,828,790     4,850,699
                                    -           -
     Cost of revenue                -           -
       Natural gas cost     2,800,858     463,058      7,663,060     1,293,585
       Construction /
        installation cost     686,115     525,680      2,054,940     1,110,452
                            3,486,973     988,738      9,718,000     2,404,037
                                    -           -
     Gross profit           3,316,129   1,147,919      9,110,790     2,446,662
                                    -           -
     Operating expenses             -           -
       Selling expenses       384,504     175,503      1,308,464       474,855
       General and
        administrative
        expenses              594,594     367,237      1,287,735       500,228
            Total operating
             expenses         979,098     542,740      2,596,199       975,083
                                    -                          -
     Income from
      operations            2,337,031     605,179      6,514,591     1,471,579
                                    -           -
     Non-operating
      income(expense):              -           -
       Interest income         33,847       1,237         41,109         2,131
       Other income (expense) (68,839)       (203)       (79,021)         (671)
            Total
             non-operating
             income (expense) (34,992)      1,034        (37,912)        1,460
                                    -           -
     Income
      before
      income tax            2,302,039     606,213      6,476,679     1,473,039
 
     Income tax               392,579      90,932      1,025,584       220,956
                                    -           -
     Net income             1,909,460     515,281      5,451,095     1,252,083
 
     Other comprehensive
      income
          Foreign currency
           translation
           gain               318,848     228,175        610,705       228,175
                                    -           -
     Comprehensive Income  $2,228,308    $743,456     $6,061,800    $1,480,258
                                                                       -
     Weighted average
      shares outstanding
       Basic & diluted
        weighted average
        number of shares
        outstanding        24,210,183  26,417,777     23,872,936    16,269,528
 
     Earnings per share
       Basic & diluted
        earnings per share      $0.08       $0.02          $0.23         $0.08
 
        The accompanying notes are an integral part of these consolidated
                              financial statements
 
 

SOURCE China Natural Gas, Inc.