TL Natural Gas Holdings Limited Announces Details of Proposed Listing on the GEM of the Stock Exchange of Hong Kong Limited ("SEHK")

Highlights- TL Natural Gas is the second largest compressed natural gas supplier* and the largest supplier of natural gas for bus use in Jingzhou, Hubei Province. - The Group operates a total of four gas refuelling stations in Jingzhou - the Jingzhou Primary Station on Dongfang Road and three substations on Shihao Road, Nanhuan Road and Shahong Road, all of which are located on major roads with high traffic and high accessibility, thus are preferred choices of retail customers.- PetroChina Company Limited is the Group's sole supplier of natural gas: the group has entered into the Master Supply Agreement for a 25-year term with PetroChina, which enables it to obtain a reliable, stable and abundant supply of natural gas.- The Group serves both retail and wholesale customers. Retail customers are mainly drivers of public transports such as buses and taxis while wholesale customers include urban gas companies, gas refuelling station operators and industrial users. The Group has also entered into an annual supply agreement with one of its major retail customers, Jingzhou Public Transportation Head Office.- To grow its business and enlarge its customer base in the natural gas industry, the Group plans to expand its gas refuelling station network by establishing new stations, install new facilities at the Jingzhou Primary Station and strengthen marketing and promotion strategies.

Offering DetailsThe Group intends to offer an aggregate of 125,000,000 Company shares of nominal value of HK$0.01 per share ("Offer Shares") by way of public offer (10%) and placing (90%) (subject to reallocation) in connection with the proposed listing of the shares on the GEM of SEHK. The indicative offer price range is between HK$0.40 and HK$0.48 per share. After deducting underwriting fees and estimated listing expenses in connection with the share offer and assuming an offer price of HK$0.44 per share (being the mid-point of the indicative offer price range), the net proceeds the Group will receive from the share offer is estimated to be approximately HK$24.5 million.

The public offer commences at 9:00 a.m. on 8 May 2018 (Tuesday) and ends at 12:00 noon on 11 May 2018 (Friday). The final offer price and the allotment results are expected to be announced on or before 17 May 2018 (Thursday). Trading of shares is expected to commence on 18 May 2018 (Friday) in board lots of 10,000 shares each.

Giraffe Capital Limited is the Sole Sponsor, while Fortune (HK) Securities Limited and Giraffe Capital Limited are the Joint Bookrunners and Joint Lead Managers of the listing.

Investment highlightsRenowned CNG supplier availing long-term and stable supply of natural gas in Jingzhou, Hubei ProvinceAs the second largest CNG supplier in Jingzhou, Hubei Province , TL Natural Gas operates four gas refuelling stations in Jingzhou, supplying CNG to retail customers (including mainly drivers of public transports such as buses and taxis) and wholesale customers (including urban gas companies, gas refuelling station operators and industrial users). In 2016, the Group ranked second in sales volume and sales value of natural gas in Jingzhou, and was also the largest natural gas supplier for bus use and the second largest natural gas supplier for vehicle use in Jingzhou . To secure a reliable, stable and abundant supply of natural gas, the Group had entered into the Master Supply Agreement for a 25-year term with PetroChina Company Limited ("PetroChina") in 2015 and, as such, PetroChina has become the Group's sole supplier of natural gas. With its stable CNG supply capability, the Group has been able to consolidate its leading presence in the natural gas market of Jingzhou, Hubei Province.

Located in Jingzhou, enjoys preferential local government policies, significant growth opportunities and has a substantial user baseSince natural gas is being widely recognised as a more economical, efficient and clean energy source, the PRC government has been actively promoting it in recent years, including launching a series of policies, such as the 13th Five-Year Plan for Natural Gas Development and Action Plan of Energy Development Strategy (2014-2020), to support further development and utilisation of natural gas and natural gas-powered vehicles. Braced by favourable government policies, natural gas demand in the PRC is expected to surge at a CAGR of 13.0% between 2017 and 2021 . Furthermore, benefiting from other positive factors including the growing population and rapid industrial development, Jingzhou will also enhance natural gas penetration in urban areas and demand for industrial fuel, which will in turn continuously enlarge the CNG user base. Natural gas consumption volume in Hubei Province is expected to increase between 2017 and 2021 at a CAGR of 25.1%. Armed with a strong reputation established and abundant operating experience in the natural gas market in Jingzhou, the Group will strive to stay abreast with industrial trends and push on with exploring future growth opportunities in the area.

Established stable business relationship with major customers and natural gas supplierOn the supply front, the Group has had more than six years' relationship with its sole natural gas supplier PetroChina. The two parties signed a 25-year Master Supply Agreement in 2015 which assures the Group has a stable natural gas source and reliable natural gas supply. As for sales, TL Natural Gas has maintained more than five years of business relationship with its major customers. In addition, it has signed an annual supply agreement with one of its major retail customers, Jingzhou Public Transport, since 2012. The Group also entered into nine supply agreements with four existing customers and five new customers during FY2017, reflecting its success in bringing in more wholesale customers. Two of the contracts stipulated minimum purchase volumes by the respective customers, which help safeguard the Group's future business development. Stable business relationship with major customers also provides the Group with a steady customer base and income source.

With an experienced and stable management teamThe management team of TL Natural Gas consists of members with seven to 11 years of extensive experience in the natural gas industry. The senior management and experienced professionals of the Group are all equipped with considerable technical and marketing know-how and have forged tight strategic partnership with key market participants and major suppliers. The team is committed to meeting high corporate governance and quality control standards. With a management team that boasts shrewd vision, in-depth industry knowledge and leadership, the Group has confidence in capturing market opportunities, formulating sound business strategies, assessing and managing risks, implementing production schemes and increasing overall profit, so that it may keep expanding its business and strengthening its leading role in the natural gas market.

Future development strategiesAccording to the Frost & Sullivan Report, the total natural gas consumption volume in Jingzhou is expected to increase from 271.1 million m3 in 2017 to 394.1 million m3 in 2021, or at a CAGR of 9.8%. On the other hand, with new liquefied natural gas ("LNG") stations being built continuously, LNG consumption volume will grow to 6,621.6 tonnes in 2021 at a CAGR of 19.6% between 2017 and 2021.

To meet the enormous potential growth in natural gas demand of various industries (including vehicle, industrial, and residential use) in Jingzhou, the Group plans to expand its gas refuelling station network in the city, including constructing (i) one new combined CNG/LNG refuelling station; and (ii) one CNG refuelling station next to an existing petroleum station, to help attract more potential wholesale and retail customers. To enlarge its wholesale customer base and to seize both the CNG and LNG markets, the Group intends to install new facilities at its Jingzhou Primary Station with LNG processing capability to meet the demand of potential LNG customers (such as urban gas companies and other industrial users). At the same time, to provide customers with better experience, the Group plans to introduce value-added services, such as tyre maintenance services, windshield cleaning tools, auto repair and maintenance services, etc. It has launched a new customer loyalty program to strengthen its customer base and cultivate customers' loyalty.

As commanded by its future development plan, TL Natural Gas intends to invest about HK$13.3 million of the net proceeds from listing in establishing two gas refuelling stations at Jingzhou, Hubei Province, including (i) approximately HK$3.9 million in the construction and renovation of gas stations, (ii) approximately HK$1.7 million to be spent on machinery and equipment, and (iii) miscellaneous costs incurred for constructing two new gas refuelling stations. Approximately HK$8.8 million of the net proceeds from listing will be used to upgrade the infrastructure and facilities of Jingzhou Primary Station to equip it with LNG processing capacity, thereby increase natural gas supply to Jingzhou.

Financial highlightFor the year ended 31 December 2015 2016 2017RMB' 000Revenue 84,003 63,696 65,665Gross profit 11,483 7,896 9,262Gross profit margin (%) 13.7 12.4 14.1Net profit margin (%) 7.2 6.2 10.0

Use of proceedsAssuming an offer price of HK$0.44 per share, being the mid-point of the indicative offer price range, the Group plans to use the approximately HK$24.5 million of net proceeds as follows:

Items / Approximate % of the total net proceeds (%)Building gas refuelling stations to expand network- Building a combined CNG/LNG refuelling station: 32.9%- Building a CNG gas station: 21.3%Upgrading the infrastructure and facilities of Jingzhou Primary Station to equip it with LNG processing capacity: 35.8%For working capital and other general corporate purposes: 10.0%

About TL Natural Gas Holdings Limited (TL Natural Gas)TL Natural Gas is the second largest compressed natural gas supplier in Jingzhou, Hubei Province*, where it operates a total of four gas refuelling stations. The Group distributes CNG to retail customers who are mainly drivers of public transports and wholesale customers including urban gas companies, gas refuelling station operators and industrial users. With long-standing relationship with PetroChina Company Limited, the Group is assured of access to reliable, stable and abundant natural gas supply.

*Source: Frost & Sullivan Report

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