China Energy 1H Result Press Release

China Energy lifts earnings 26% higher in 1H08 on strong demand for DME

􀂄 Core net attributable profit rises 36%, excluding one-off items

􀂄 Ramping up feedstock production by 200% will widen margins and enhance profitability in the near term

􀂄 Well-placed to reap further gains from China’s growing emphasis on DME as alternative energy fuel

SINGAPORE, 14 AUGUST 2008 China Energy Limited (China Energy, the Group or 中国能源有限公司), China’s largest producer of dimethyl ether (DME), reported a 36% surge in core net attributable profit to RMB149.6 million for the half-year ended 30 June 2008 (1H08). These exclude one-off items totalling some RMB10 million for donations to Sichuan earthquake relief efforts and for the independent review of the Guangzhou acquisition. After the one-off items, net profit attributable to shareholders rose 26% to RMB139.6 million in 1H08.

Due to the fast growing demand for DME, an environmentally-friendly clean fuel with lower smoke emission rates than LPG and diesel, the Group’s revenue rose 52% to RMB596.4 million in 1H08. As a result, percentage contribution to total sales from DME rose from 64% in 1H07 to 100% in 1H08. This is in line with new capacity additions to the plants in Zhangjiagang (Jiangsu Province) and Guangzhou (Guangdong Province).Said China Energy’s Chairman and Chief Executive Officer, Mr Cui Lianguo (崔连国), “We are encouraged by the sales growth we achieved for DME in 1H08, as well as the support given by the PRC government to reduce the VAT on DME from 17% to 13%, effective last month. This move is a clear display of the government’s support for the development and growth of DME as an alternative source of energy in the PRC.

“Our immediate priority is to increase our methanol self sufficiency, especially with the recent volatility and sharp increase in its prices. We are now expanding our methanol facility to boost supplies of this feedstock for our DME production. When the new facility is in place, it will help improve our operating margin and bring the Group’s profitability to an even higher level next year.”

China Energy has begun construction of its Methanol Phase III facility in Shandong, to raise its production capacity from the current 250,000 metric tons per annum (mtpa) to 750,000 mtpa. When completed, the new capacity will increase China Energy’s self-sufficiency for methanol requirements, from about 20% to some 60%. Once the capacity comes onstream, the Group will be less dependent on the spot market as a source of methanol. Average spot prices have soared about 86% from US$243 in 1H07 to US$452 per ton in 1H08.

The PRC Income Tax Authority has approved the application by the Group’s subsidiary for tax incentives for Methanol Phase III. It will enjoy two years of tax exemption, followed by three years of a preferential tax rate imposed at 50% of the statutory level, commencing from the first profitable year.

As a result of better working capital management, China Energy improved its operational cashflow, generating RMB136.4 million in cash in 1H08, compared with cash outflow of some RMB45.8 million in the preceding period. However, continuing investments to build up the Methanol Phase III facility, prepayment of land use rights in Shandong for the Group’s future expansion and repayment of a loan to a related party (Shandong Jiutai Chemical Technology Ltd) raised net gearing to about 31% as at June 2008.