Hong Kong company reporting season

Hong Kong utility CLP’s profit beats forecasts, expects return regime agreement before July

The electricity provider recorded net profit of HK$12.71 billion for 2016, down 18.8 per cent from 2015, but slightly above analysts’ forecasts

PUBLISHED : Monday, 27 February, 2017, 2:36pm
UPDATED : Monday, 27 February, 2017, 10:52pm

CLP Holdings, which controls the larger of Hong Kong’s two electricity suppliers, said it will seek out opportunities to expand in mainland China and India, as it posted a smaller than expected decline in net profit for last year.

The company recorded a net profit of HK$12.71 billion (US$1.64 billion) for the 12 months to December 31, down 18.8 per cent from 2015, after taking into account one-off items that affected comparability, it said in a filing to Hong Kong’s bourse on Monday.

The one-off items included a HK$6.62 billion gain from the sale of the Iona natural gas processing plant in Australia and a HK$1.48 billion asset impairment write-down in 2015, which were not repeated last year.

Group operating earnings rose 7.1 per cent to HK$12.3 billion.

Outside Hong Kong, we will continue to explore investment opportunities in mainland China and India – our two major growth markets – primarily in non-carbon generation
Richard Lancaster, chief executive, CLP

CLP was forecast to post a net profit of HK$12.1 billion, according to the average estimate of 13 analysts polled by Reuters.

“We attribute the better than expected results to Australia, where profits more than doubled with sales

price rises in a tightened wholesale market,” Citi’s head of Asia utilities research Pierre Lau said after the results were announced.

A final dividend of HK$1.09 per share was recommended by the board, bringing the full-year payout to HK$2.8, up from HK$2.7 in 2015.

“We are confident that a new [electricity industry regulatory regime in Hong Kong] will provide the clarity we need to meet the challenges of the coming years,” chief executive Richard Lancaster said in the filing, commenting on discussions with the government about the regime that will expire in 2018.

The regime provides the suppliers with a guaranteed return of up to 9.9 per cent on asset value. Hong Kong’s environment chief Wong Kam-sing said in 2015 the regime could be enhanced by cutting the maximum return to between 6 and 8 per cent and by devising an incentives-and-penalities scheme to improve performance and raise competition.

Both CLP and the government are working hard to reach an agreement before this term of the government expires, Betty Yuen, vice chairman of CLP Power Hong Kong told the press on Monday.

This term of government expires on July 1.

CLP recorded a 4.6 per cent rise in profit from its Hong Kong operations to HK$8.64 billion last year, on the back of higher demand from a growing population and infrastructure developments.

Profit sourced from mainland China fell 23.1 per cent to HK$1.52 billion, due to a slowdown in electricity demand, higher coal costs and an excess supply of coal-fired power generating capacity that saw plant utilisation rates drop industry-wide.

CLP last year booked asset impairment losses of HK$199 million for its coal-fired plant in Fangchenggang, Guangxi Zhuang autonomous region.

It cited competition from nuclear and hydro projects in the region, in addition to “substantial environmental investment to enable [its coal-fired plant] to effectively compete in the presently oversupplied market”.

“We have seen some strengthening in demand in January. It’s a bit early to say it’s a trend....It’s hard to say where the coal price will go, but the tariffs in China are closely linked to coal prices and there is a sustained trend that the tariffs will be adjusted,” Lancaster said at the media briefing.

Meanwhile, it said it remains optimistic on its “long term” prospect due to its “strategic location” in Southeast Asia and access to the “belt and road markets” where Beijing is encouraging investment into.

In Australia, CLP’s earnings jumped 121.2 per cent to HK$1.85 billion last year, lifted by higher output from its power plants and tighter supply in the wholesale electricity market.

Earnings from India dropped 23.6 per cent to HK$469 million last year despite higher output, especially from wind power, since several one-off gains in 2015 were not repeated last year.

“Outside Hong Kong, we will continue to explore investment opportunities in mainland China

and India – our two major growth markets – primarily in non-carbon generation,” Lancaster said in the filing.

“In Vietnam,where the demographic and economic growth present a strong need for new low-cost

generation capacity, we will look to conclude [talks on] our [proposed] Vung Ang II and Vinh Tan III projects.”

The company has already seen strong demand in its Smart Charge network, the quick charging service it launched with HKT last year for electric cars, Lancaster said, in response to concern that the new tax policy on luxury electric cars may affect its operation.

The city has more than 6,000 electric cars so far and there is a “tremendous potential” in further growth, given the demand for short-distance driving, he said.

Financial Secretary Paul Chan Mo-Po, in his first budget package last week, said the government will set a ceiling of tax waiver on the new vehicle registration tax, which will bring an extra tax burden for potential buyers of expensive cars, such as Tesla .

CLP’s shares closed 0.5 per cent higher on Monday at HK$78.2 after the results, compared to a 0.2 per cent fall of the Hang Seng Index.