Power Assets plans overseas acquisitions after Hong Kong sale

Li Ka-shing's utilities firm will target overseas assets after selling stake in Hongkong Electric

PUBLISHED : Wednesday, 26 February, 2014, 1:14am
UPDATED : Wednesday, 26 February, 2014, 1:14am

Power Assets Holdings, an international utilities firm controlled by tycoon Li Ka-shing, says it will seek to buy assets in developed markets to plug a profit gap after it sold a large chunk of its Hong Kong power unit.

It posted a net profit of HK$11.17 billion for last year, up 14.8 per cent from 2012 and 11 per cent higher than the HK$10.1 billion average forecast of 14 analysts polled by Thomson Reuters.

The growth was driven by a 40 per cent rise in profits from its British utilities units. Hong Kong earnings were 3 per cent higher.

"In the near to medium term, we will look for suitable opportunities to expand in Australia, North America and continental Europe in power generation, transmission and distribution," chairman Canning Fok Kin-ning said in a statement yesterday.

Power Assets last month sold a 50.1 per cent stake of its previously wholly owned Hong Kong unit, Hongkong Electric, to HK Electric Investments, a new trust firm separately listed in the city.

We will look for suitable opportunities to expand [overseas]

Although Power Assets will reap a one-off HK$52 billion gain from the disposal, Evan Li, head of renewables and utilities equities research at Standard Chartered, estimates its net profit excluding the gain will fall 30 per cent this year to HK$7.78 billion.

That is because Hongkong Electric is no longer a subsidiary of Power Assets after the sell-down, and its revenues and profits can no longer be fully included in the latter's books.

Sister firm Cheung Kong Infrastructure (CKI), whose main asset is a 38.9 per cent stake in Power Assets, posted a net profit of HK$11.64 billion, up 23.5 per cent from 2012. It beat analysts' forecast by 10 per cent.

Evan Li said both CKI and Power Assets may have beat forecasts because analysts had been conservative in estimating one-off profits from their commonly owned British gas distribution unit Wales and West Utilities.

He said they faced the risk of higher interest rates, which would affect their Hong Kong operations through higher interest costs, but the impact on their overseas unit would be offset in the longer term by higher tariffs linked to cost of capital.

Weaker foreign currencies could also affect their profits, he said. Non-Hong Kong profits made up 57.2 per cent of Power Assets' total profit last year, up from 52.5 per cent in 2012.

Given CKI's high debt burden when debt not consolidated in its books is included, it may need to raise cash by selling shares for acquisitions, raising the risk of earnings dilution, he added.

CKI had HK$6 billion of cash at the end of last year. Power Assets is estimated to have more than HK$63 billion currently.



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