Cheung Kong unit to invest in Queensland
A Cheung Kong (Holdings) company plans to spend about A$900 million (HK$6.21 billion) building a 1,100 kilometre power line in northwestern Australia, according to Queensland Premier Anna Bligh.
In a statement yesterday, the state did not specify which Cheung Kong firm was involved, but analysts widely expected the group's energy flagship, Cheung Kong Infrastructure Holdings (CKI), and its associate, Hongkong Electric Holdings, were the investors, based on their track record of providing electricity transmission services in the country.
The Queensland government said IsaLink, majority-owned by Cheung Kong Group, planned to build the high-voltage electricity transmission line linking Rockhampton on the eastern coast of Queensland and the mining hub at Mount Isa in the northwest.
The project, pending an environmental impact study, is scheduled for public consultation and a government review by the end of the year before a decision is made.
While the state government would welcome the undertaking for the potential economic benefits it would bring to the resource-rich region, analysts said it presented a much-needed investment option to profit-challenged CKI and Hongkong Electric. Hongkong Electric, in which CKI has an about 37 per cent stake, will have its asset-based return on its core electricity supply to Hong Kong and Lamma Islands slashed from the maximum 15 per cent at present to 9.99 per cent on January 1 next year when a new regulatory framework takes effect.
Banking on the power line project to electrify economic development in Queensland's northwest for decades to come, the state government said the IsaLink power line could be extended to supply power to McArthur River mine in Darwin and other customers in the Northern Territory if commercially viable. The government did not specify the economics and investment arrangement on the IsaLink development. CKI did not return calls nor reply to e-mail queries.
Despite the IsaLink project, some analysts believed Hongkong Electric was destined to see profit decline next year as the project remained in its early stage and only a limited number of overseas investments were inked recently.
Citigroup global markets research analyst Pierre Lau wrote in a research before the announcement of the IsaLink project that Hongkong Electric's overseas expansion record was 'passive' and 'unexciting' and expected its share price would underperform in the next 12 months.
He forecast Hongkong Electric's net profit will tumble 23 per cent to HK$5.6 billion next year from HK$7.28 billion this year.
Hongkong Electric shares jumped HK$1.15, or 2.71 per cent, to HK$43.50 yesterday while CKI rose HK$1.20, or 4.56 per cent, to HK$27.50.
A Thomson First Call poll showed a profit consensus for Hongkong Electric at HK$7.36 billion this year, or 4.57 per cent higher from last year, with CKI's at HK$4.79 billion, down 9 per cent.
Analysts say project will not reverse profit decline for Hongkong Electric
Cost of the power line project will amount to, in HK$: $6.2b