CLP Group

CLP’s 2019 net income may see a temporary dip as Hong Kong power deal takes effect in October

Company expected to see profit fall next year after new price-setting deal with Hong Kong government

PUBLISHED : Monday, 06 August, 2018, 3:02pm
UPDATED : Monday, 06 August, 2018, 10:59pm

Shares of CLP Holdings, the larger of Hong Kong’s two electricity suppliers, rose to an all-time high after it reported a 26 per cent rise in half-year net profit, driven by gains from its Australia and mainland China businesses, as it braces for a lower return rate that will take effect in October.

The company – set up at the beginning of the last century – reported a net profit of HK$7.44 billion (US$948 million) for the first six months, up from HK$5.91 billion a year earlier, it said in a filing to Hong Kong’s bourse after the morning trading session closed.

Excluding non-recurring items, mainly a HK$450 million provision on receivables, profit was HK$7.89 billion, in line with the number estimated by analyst Dennis Ip of Daiwa Capital Markets, and about 55 per cent of the HK$14.27 billion average full-year profit expected by 12 analysts in a Bloomberg survey.

A second interim dividend of 61 HK cents per share was proposed, making the total first-half payout HK$1.22, compared to HK$1.18 in the first half of last year.

Analysts see the company’s profit falling next year by 10.3 per cent to HK$12.8 billion after it agreed a 15-year arrangement with the Hong Kong government in July to cut the maximum allowed return on permitted assets from 9.99 per cent to 8 per cent, effective October 1.

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In the latest half year, CLP sold 4.7 per cent more power in Hong Kong due to higher demand from an exceptionally hot May. The Hong Kong business saw net profit grow 3.2 per cent to HK$4.5 billion.

Chief executive Richard Lancaster told reporters that CLP has budgeted HK$1 billion to upgrade an existing transmission line that sends power from Shenzhen’s Daya Bay nuclear power plant to Hong Kong, which would allow for the transmission of more clean energy from the mainland to the city and help meet the government’s 2030 emission reduction objectives in a “relatively cost efficient way”.

“We have yet to decide on the timing, type of additional clean energy that may be imported, and how it will be implemented,” Lancaster said when asked further if CLP will import power from Guangdong’s Yangjiang nuclear plant which it partly owns.

Net profit from its Australian business, the second-largest profit contributor, almost tripled to HK$2.26 billion thanks to its capacity to sell output at peak demand periods when prices are the highest.

CLP warned that second-half profit from Australia will be challenged by expectations of higher volatility and a decline in wholesale power prices.

In mainland China, first-half net profit increased 75 per cent to HK$1.12 billion, due to contribution from the December 2017 acquisition of a 17 per cent stake in a nuclear power plant in Yangjiang, Guangdong province, and to strong growth in power demand.

However, the company said profit margins in the mainland remained under pressure from high coal prices and a lack of adjustment of benchmark power prices. It expected earnings to be squeezed in the second half by lower sales volumes and higher coal costs at its Fangchenggang plant in Guangxi Zhuang autonomous region.

CLP early this year made its maiden direct investment in a technology start-up, putting around HK$40 million into AutoGrid, a California-based software provider for power suppliers, chairman Michael Kadoorie said in the results filing.

CLP shares rose 2.5 per cent on Monday to close at a record high of HK$90 per share.