Power shutdown to short CLP's earnings

PUBLISHED : Tuesday, 10 July, 2012, 12:00am
UPDATED : Tuesday, 10 July, 2012, 12:00am


CLP Holdings warned investors yesterday that the partial shutdown of its biggest power plant in Australia would hit earnings this year, although analysts expect the Hong Kong power supplier to still post higher profit.

The company said in a statement to the Hong Kong stock exchange that its results were expected to be adversely affected by the incident. A CLP spokeswoman said the statement was not a profit warning, and that three of the plant's power-generation units should be back in operation by the middle of this month.

At the close of trading yesterday, CLP's shares were down 0.44 per cent at HK$67.20 each, after hitting an intra-day low of HK$66.60. The overall market fell nearly 2 per cent.

Flooding occurred in the state of Victoria last month and crippled three of the four units at the Yallourn coal-fired power station, which belongs to CLP's largest overseas subsidiary, TRUenergy. Analysts estimate it will cost CLP HK$2.5 billion in revenue and shave HK$500 million off earnings this year. Last year, the group posted HK$91.63 billion in revenue and HK$9.29 billion in profit.

Analysts generally were positive about the outlook for CLP for 2012. They said it could not be worse than the previous year, when the company set aside a non-recurrent impairment loss of HK$1.93 billion for a new carbon tax policy in Australia that is expected to pinch the company's income after government subsidies expire by 2017.

Also, from this year onwards the company would gain a carbon tax subsidy of A$257.5 million (HK$2.04 billion) from the government, so it was unlikely the incident would mean a loss so big that it would to eat up all the growth for CLP this year, Citigroup analyst Pierre Lau wrote in a report. While TRUenergy contributed three-fifths of CLP's revenue last year, it made up less than one-third of the group's earnings, or HK$2.91 billion.

Simon Yeung, an analyst at Citic Securities in Hong Kong, said it was impossible to give an accurate estimate of the incident's financial impact on CLP because no details were given about the plant's insurance coverage, any hedge made against the wholesale power tariff or any possible national subsidy the company might receive related to the disaster. But based on TRUenergy's earnings last year, the damage at the plant and its power capacity, Yeung estimated there could HK$2.5 billion in lost revenue this year.

Another analyst from a European firm said the incident could squeeze CLP's earnings by HK$500 million this year. The analyst was also worried about the capital expenditure CLP could incur in the next few years on repairs and upgrades as the company is under pressure from the Australian government to improve its ageing power-generation facilities.

However, the analysts said the incident was unlikely to delay CLP's plan to hive off TRUenergy, which they expected to take place early next year because CLP needed cash for acquisitions in India, Australia and Hong Kong.

As to whether the incident might affect ongoing talks between the Australian government and TRUenergy over the size of government payments for early closure of its coal-fired plants under a scheme to cut carbon emissions, CLP said those talks were recently extended and no decision had been made.

The CLP spokeswoman said the company would issue another statement in the next few weeks once it had a clearer picture of the incident's financial impact.


Yallourn's output is equivalent to about this proportion of the state of Victoria's power demand