Li Ka-shing

Li Ka-shing’s Power Assets posts 2 per cent growth in underlying profit

Net profit of HK$7.73 billion in line with analyst estimates

PUBLISHED : Wednesday, 16 March, 2016, 2:22pm
UPDATED : Wednesday, 16 March, 2016, 2:54pm

Power Assets, an international utilities firm controlled by tycoon Li Ka-shing, hinted at a possible special dividend later in the year as it posted 2 per cent growth in underlying profit for last year.

Net profit amounted to HK$7.73 billion after the booking of a HK$532 million loss on a stake sale in its Hong Kong power unit.

That was in line with the average estimate of HK$7.76 billion of 12 analysts polled by Thomson Reuters.

Excluding the disposal loss last year and a HK$52.93 billion disposal gain in early 2014, its underlying profit would be HK$8.26 billion, 2 per cent higher than the HK$8.08 billion in 2014.

A final dividend of HK$2.02 per share was proposed, bring the full-year total to HK$2.70, up from HK$2.68 in 2014.

The 2014 gain was booked on a stake sale through separate listing of its Hong Kong utilities unit HK Electric Investments.

We believe it will be easier for CKI to merge with a less cash-rich Power Assets
Dennis Ip, Daiwa

Chairman Canning Fok Kin-ning hinted at a possible special dividend payout by Power Assets, which had a cash pile of HK$68.15 billion at the end of last year after asset disposals.

“To deploy our cash, the group is actively exploring a number of investment opportunities,” Fok said in a filing to Hong Kong’s stock exchange on Wednesday. “If no sizeable investment is expected by the upcoming annual [shareholders’] general meeting, a board meeting would be convened to decide on the payment of a special dividend.”

Power Assets sold a 16.53 per cent stake in HK Electric last June to Qatar’s sovereign fund, while Cheung Kong Infrastructure (CKI), another firm controlled by Li, sold a 3.37 per cent stake in HK Electric to the fund. The sales reaped a total of HK$9.25 billion.

Power Assets’ stake in HK Electric, which faces the prospect of a further reduction in its permitted rate of return, was cut from 100 per cent to 33.4 per cent after the spin-off and stake sales.

Power Assets booked HK$4.9 billion of earnings from Britain last year, compared with HK$4.86 billion in 2014, with favourable tax adjustments from a cut in corporate tax rate offset by a weaker pound.

In Australia, earnings fell 2.3 per cent to HK$887 million last year, owing to a weaker Australian dollar and an unfavourable decision by regulators that affected its revenues, which more than offset the additional contribution from a gas distribution firm bought in August 2014.

Earnings from Hong Kong fell 23.3 per cent to HK$1.36 billion due to reduction of its stake in the local utility unit, while profit from mainland China grew 6.9 per cent to HK$327 million thanks to lower coal costs and favourable tax adjustments for previous years, that more than offset lower power sales and tariffs.

Power Assets recently joined parents CKI and CK Hutchison in a bid to buy a 50.4 per cent stake in Australian power grid operator Ausgrid estimated to be worth some A$10 billion, according to a Daiwa Capital Markets report.

But competition was keen due to the current low interest rate environment that made assets with stable returns attractive, Daiwa’s head of utilities and renewables research Dennis Ip said.

“We believe Power Assets is likely to distribute a significant special dividend [of HK$10 to HK$15 a share] over March to August [this year],” he wrote. “If we assume the company pays out all of its HK$59 billion net cash or HK$27.5 a share in the form of special dividends, Power Assets’ 2017 sustainable dividend yield would be 4.9 per cent.”

In November, minority shareholders of Power Assets voted down a proposed merger into CKI.

Some minority shareholders said the proposed share-exchange ratio and the post-merger dividend for all CKI shareholders was not attractive enough.

Hong Kong securities regulations bar CKI from proposing another merger with Power Assets within 12 months after that rejection.

Ip said another merger proposal was likely to be launched after the moratorium expires.

“We believe it will be easier for CKI to merge with a less cash-rich Power Assets, as Power Assets’ minority shareholders would shift their focus to the potential value enhancement [from] the merger,” he said.