Analysts forecast profit decline for HK Electric

Electricity supplier Hongkong Electric Holdings (HKE), due to reveal its interim results tomorrow, is expected to see net profit decline in the first half of this year mainly due to a deferred taxation provision.

A South China Morning Post poll of four brokerages - Bear Stearns Asia, Citigroup Smith Barney, CLSA Emerging Markets and Nomura Asia Equity Research - resulted in profit decline forecasts ranging from 0.9 per cent to 17.6 per cent, giving a bottom line of between HK$2.39 billion and $1.99 billion.

Key issues are how much HKE will provide for its $4.67 billion deferred taxation now that Hong Kong companies must reveal the liability on income statements, and the impact of a 1.5 per cent corporate tax rise, starting from January 1 this year.

Bear Stearns and Citigroup estimated a deferred tax provision of HK$438 million.

Another focus will be on whether HKE managed to achieve the annual permitted return of up to 15 per cent of its fixed assets in use under the scheme of control. Analysts said electricity sales on Hong Kong and Lamma islands slowed to a trickle due to the Sars crisis and cooler temperatures, while tariffs were frozen in the first half.

Under these circumstances, HKE could have reduced this impact by transferring monies from the consumer-owned development fund. However, they said the transfer was in question as the fund was running low at $144 million at the end of last year.

HKE's growth was expected to come from its power distribution portfolio in Australia as the newly acquired Citipower in Melbourne started to contribute and the Australian dollar appreciated.

Nomura estimated the contribution of the Australian portfolio would grow by 41.4 per cent, while Bear Stearns estimated a 33.6 per cent increase to $222 million.

Thomson First Call's consensus estimate on HKE's full-year profit is flat at HK$6.83 billion.