CLP expects strong first half to continue
But regulatory and price challenges lie ahead in markets at home and abroad
Challenges lie ahead for power utility CLP Holdings despite its strong performance in the first half of this year, analysts have cautioned.
They said CLP, which reported a better-than-expected 8.2 per cent growth in net profit to HK$3.71 billion in the first half of this year and expects the growth to continue in the second half, was facing regulatory risks in Hong Kong and China and other difficulties elsewhere.
In the first half, CLP achieved its permitted return of up to 15 per cent on its average fixed assets in use in Hong Kong by transferring HK$263 million from the consumer-owned development fund as part of the scheme-of-control mechanism.
However, the 'build more, charge more and earn more'' mechanism has been a subject of a public outcry as Hong Kong enters its 56th month of deflation.
'There remains the risk that the Hong Kong government puts pressure on CLP to cut returns ahead of the expiry of the scheme of control agreement in 2008,' Deutsche Bank analyst David Clark said.
CLP group managing director Andrew Brandler said on Monday the company expected no major changes to the existing regulatory regime. However, the government wants CLP and Hongkong Electric Holdings to commit to investment in renewable energy and efficiency improvements.
Analysts said CLP's Asia Pacific portfolio, which propelled the first-half profit growth, was exposed to higher risks of tariff collection problems in India, compulsory tariff cuts in China and weak pool prices in Australia.
The growth propeller in the first-half was power plants in China, Taiwan and Australia. The core electricity supply in Kowloon, the New Territories and Lantau contributed 81 per cent, or HK$3.04 billion of the earnings, albeit growing at only 7.6 per cent.
CLP closed yesterday 30 HK cents or 0.88 per cent higher at HK$34.30.
