Shares of Li Ka-shing’s Power Assets surge on special dividend and higher profit

Shares of international utilities firm Power Assets Holdings, controlled by tycoon Li Ka-shing, surged as much as 7 per cent after it unveiled a HK$6 per share special dividend and a higher than expected 30 per cent annual profit rise.  

Net profit came to HK$8.32 billion for 2017, much higher than the HK$7.56 billion average estimate of seven analysts polled by Bloomberg.

The company attributed the increase to a HK$922 million one-off gain from the disposal of properties, profit contribution from acquisitions and favourable exchange rates that allowed it to book translation gains on overseas operations.   

In 2016, profit was hurt by a weaker pound, lower UK tax credits, and lower profit booked from its Hong Kong electricity unit after its stake was reduced to 33.4 per cent from 49.9 per cent.

The company has energy projects in Hong Kong, China, Europe, Canada, Australia, and New Zealand, some of which are co-investments with Cheung Kong Infrastructure Holdings (CKI).

Britain contributed 45.6 per cent of its profit.

Besides the special dividend, a final dividend of HK$2.03 per share was proposed, bringing the full-year payout to HK$16.3, compared to the previous year’s HK$7.72.

Power Assets shares eventually closed 3.2 per cent higher at HK$71.2.

UBS head of Asian utilities research Simon Powell said the share price reaction was surprising, since the special dividend was not unexpected given Power Assets had been paying special dividends in the past few years, and any payout will be reflected in a lower share price after the payment.

“Investors should not get too excited, given Power Assets’ lower growth prospect relative to Cheung Kong Infrastructure, and indication from the UK government that return on equity of utilities would be slashed to between 3.5 and 5 per cent in the 2020-21 financial year from 6 to 8 per cent currently,” he said.

Meanwhile, CKI, a company also controlled by Li that sources most of its profit from Britain, posted a lower than expected 6 per cent rise in annual profit, as it continues to scout for acquisition opportunities. 

Net profit amounted to HK$10.26 billion last year, up from HK$9.6 billion in 2016 – a year when its profit was hit by the weaker pound and other non-operating factors. 

It compares with an average estimate of HK$10.67 billion of eight analysts polled by Bloomberg. 

“Against a backdrop of uncertainties in the macroeconomic landscape – rising interest rates, continuing Brexit saga and global political unrest, among others – CKI is confident of maintaining the business momentum,” chairman Victor Li Tzar-kuoi, Li’s eldest son, said in a results filing to Hong Kong’s stock exchange.  

“We will also study acquisition opportunities – in existing business areas and in new areas as well as existing geographic markets and new ones.”

CKI will work closely with CK Asset and Power Assets, which are also controlled by the Li family and have ample cash on hand, “in seizing new and, in particular, sizeable investment opportunities”, he added. 

A final dividend of HK$1.71 per share per share was proposed, bringing the full-year payout to HK$2.38, up from HK$2.26 in 2016. 

CKI engages in gas and power distribution, power generation, rolling stock leasing, water supply and sewage treatment in Britain, gas and power distribution and transmission in Australia.

It is also involved in waste management and power distribution in New Zealand, waste-to-energy projects in Holland, power generation and oil logistics facilities and car parks management in Canada, and tollways and bridges in mainland China.

Net profit from Britain fell 16.5 per cent to HK$5.28 billion, due to a weaker pound and one-off accounting “deferred tax gains”, but it still contributed 51.5 per cent of CKI’s total profit. 

Australia, which accounted for 19 per cent of the total profit, edged up 0.4 per cent to HK$1.95 billion.  

CKI shares ended up 0.53 per cent to HK$66.85.