The company's 2021 annual results fell short of unanimous market expectations and our estimates. The company's revenue increased 30.9% year over year to HK$55.56 billion, while net shareholder profit decreased 16.5% year on year to HK$5.02 billion.
As the impact of the COVID-19 pandemic continues, we expect gas sales in Hong Kong to remain flat in 2022.
We expect the company's natural gas sales in mainland China to increase by around 12% in 2022. We expect China's natural gas consumption to continue to grow rapidly in 2022 and the company to grow at a faster rate.
The company's gas sales spread is expected to drop slightly in 2022 due to higher gas prices. We expect gas distribution companies' sales spreads to continue to be pressured and fall slightly in 2022.
The target price was lowered to HK$10.50, but the “collection” rating was maintained.
The company's 2021 annual results fell short of unanimous market expectations and our estimates. The company's revenue increased 30.9% year over year to HK$53.56 billion, while net shareholder profit decreased 16.5% year on year to HK$5.02 billion. The main reason for the decline in net profit was due to asset impairment losses. Total gas sales volume in Hong Kong decreased by 1.0% year on year, and sales of gas appliances increased by 8.8% year on year. Gas sales in mainland China increased 15.5% year-on-year to 31.08 billion cubic meters, and total customers increased by about 10.1% to 35.03 million. Gas distribution and related businesses, including gas sales, connection services, gas appliance sales, and maintenance services, contribute 85.2% of the company's total revenue and 89.7% EBITDA. The Hong Kong gas business is the cornerstone of the company, contributing 38.5% of total EBITDA in 2021. The gas distribution business and water business in mainland China contributed 51.2% of total EBITDA. The company has also greatly benefited from its joint ventures and joint ventures, which are mainly engaged in gas distribution business and real estate development. Joint ventures and joint ventures in the gas distribution business in mainland China contributed HK$1.89 billion in profit in 2021, an increase of 58.8% over the same period last year; joint ventures and joint ventures in the real estate business recorded a profit of HK$646.9 million in 2021.
As the impact of the COVID-19 pandemic continues, we expect gas sales in Hong Kong to remain flat in 2022. The company's gas distribution business in Hong Kong has yet to recover from the impact of the COVID-19 pandemic. The company added 21,160 new customers in 2021, an increase of 1.1% over the previous year. Total pipeline gas sales in 2021 fell 1.0% year over year to 27.68 billion MJ, mainly due to reduced commercial consumption. Despite a steady increase in COVID-19 vaccination rates in 2021, they are still unable to effectively contain the spread of the new virus variant. Hong Kong was heavily affected by the Omicron variant in the first quarter of 2022. We expect international travel and tourism to remain restricted by the COVID-19 pandemic, and Hong Kong's tourism industry remains sluggish. The gas distribution market in Hong Kong is a highly mature and stable market composed mainly of residential and commercial customers. The economy has been hit hard by the COVID-19 pandemic, with retail, hotels, and tourism being the hardest hit. We expect commercial consumption of natural gas will continue to be affected by the COVID-19 pandemic. We expect total gas sales in Hong Kong to be flat in 2022. The company's stove sales in Hong Kong recovered and increased by 8.8% in 2021. We expect total sales of gas and stoves in Hong Kong to maintain positive growth in 2022.
We expect the company's natural gas sales in mainland China to increase by around 12% in 2022. In 2021, the company's gas distribution business in mainland China fully recovered from the impact of the COVID-19 pandemic, and consumption by its industrial and commercial customers grew very fast. The growth rate of natural gas consumption in China recovered to double digits in 2021. According to data from the National Development and Reform Commission, China's natural gas consumption in 2021 was 327.06 billion cubic meters, an increase of 12.7%. We believe China's natural gas consumption will continue to grow rapidly in 2022 due to strong overseas demand. We believe the company's gas sales will continue to benefit from a favorable policy environment and its growing number of urban gas projects, which remain unchanged. The need to restructure energy consumption will drive gas consumption over the long term. Natural gas currently accounts for only about 8% of China's total energy consumption, far below the government's long-term target. Both the central government and local governments plan to develop natural gas as one of the main types of energy in China's modern clean energy system, and have kept their goals unchanged so far. On the other hand, environmental pressure will also drive natural gas consumption. All favorable policies and targets set by the government for gas consumption remain unchanged. We expect China's natural gas consumption to increase by about 12% in 2022 and maintain a relatively rapid growth rate over the next 3-5 years. The company continues to acquire more urban gas projects, cover more populated areas, and will bring more demand for gas. Additionally, the company's gas penetration rate is still low, and the company will add about 2 million new customers each year.
The company's gas sales spread is expected to drop slightly in 2022 due to higher gas prices. The company's gas sales spread fell by about 18.6% year over year in 2021, mainly due to higher gas procurement costs. Due to high demand and tight supply of liquefied natural gas, the average gas purchase price rose from RMB 2.01 per cubic meter in 2020 to RMB 2.43 per cubic meter in 2021. Spot prices for LNG accelerated in the second half of 2021 and continued into 2022. The outbreak of the Russia-Ukraine conflict has further boosted the price of LNG.
Overall, the company was able to pass on most of the cost increases to customers through the gas price adjustment mechanism. The gas price adjustment mechanism after the gas price reform is more mature. However, since gas prices have risen so much in such a short period of time, downstream customers have inevitably been seriously affected. The company must bear part of the price increase to support its customers and guarantee gas sales. Furthermore, the difference in gas sales prices for residential users is even more adversely affected by the rise in gasoline prices. Gas prices are expected to remain high in 2022, which will continue to adversely affect the company's gas sales spread. Additionally, the company was unable to import liquefied natural gas to supplement its gas supply as liquefied natural gas prices reached record highs.
We expect gas distribution companies' gas sales spreads to continue to be pressured and fall slightly in 2022.
We expect revenue from connection service contributions to remain stable in 2022. Revenue contributed by the connecting services business increased 24.1% year-on-year to HK$3.92 billion in 2021. The company's normal connection business has fully returned to normal in 2021. Overall, the company has connected about 220 new customers over the past 4 years. As the gas penetration rate is still very low and more natural gas projects have been acquired, the company expects to continue to add more customers. Due to the low penetration rate, industrial customers in the company's existing business areas still have great potential for growth. We expect the company's connectivity business to remain at a normal level in 2022, and the company plans to add about 2 million new users.
The target price was lowered to HK$10.50, but “collection” was maintained. Hong Kong China Gas is one of the largest gas distributors in mainland China and also operates gas distribution business in Hong Kong.
Due to energy restructuring and environmental pressure, we expect domestic natural gas consumption to maintain rapid growth in the long term. We expect the company's total gas sales to grow by around 12% in 2022. Due to high gas prices, we expect the company's gas sales price gap to drop slightly in 2022. The company also enjoys stable profitability in the Hong Kong gas market, which is expected to remain unchanged. As the impact of the COVID-19 pandemic continues, we expect Hong Kong's total gas sales volume to remain flat in 2022. Due to rapid growth in gas sales in mainland China, we expect the company's net profit to record a steady increase in 2022. However, as liquefied natural gas prices soared due to the outbreak of the Russia-Ukraine conflict, the company's overall price-earnings ratio valuation level declined in the first quarter. As a result, we lowered our target price to HK$10.50 because of the low valuation level of the price-earnings ratio, which is equivalent to 27.0 times the price-earnings ratio for FY2022, but maintains the “collection” rating.
