CLP Holdings Earnings: An All-Around Improvement but EnergyAustralia Is Key to Further Gains

""
Securities In This Article
CLP Holdings Ltd
(00002)

CLP’s 00002 first-half 2023 performance, rebounding to a net profit of HKD 5.06 billion from a net loss of HKD 4.85 billion a year ago, showed an all-around improvement given more benign energy costs and the absence of significant mark-to-market fair value losses. Operating performance was in line, but we lift our 2023 net profit estimate by 17.8% to HKD 10.25 billion as we cut our effective tax rate assumption to 15% from 19%. Our operating profit projections are little changed as we had already factored in a pick-up in operating margin on more benign fuel cost swings, reduced disruptions in its Mt Piper and Yallourn power plants and the absence of further hedging losses. We do not expect much market reaction to the earnings results as EnergyAustralia remains an overhang in the absence of any developments to find partners for its projects. We think CLP is fairly valued, trading close to our unchanged fair value estimate of HKD 63, pricing shares at 8.8 times enterprise value/EBITDA and at 5% dividend yield.

Around 85% of CLP’s operating income is relatively stable, comprising its regulated Hong Kong integrated power operations and its diversified portfolio of power plants in mainland China. First-half net profit of the former grew 2.6% year on year and the latter, 9.1%. CLP is negotiating its next Hong Kong five-year development plan with authorities. We have assumed a 3% increase in CLP’s next plan to HKD 59.52 billion, but higher material costs may lead to upside, which may lift 2024-28 growth. CLP should see a stronger second-half 2023 profit from mainland China with lower coal costs leading to higher margins.

We still expect EnergyAustralia to see a net loss in 2023 as it has not fully cycled through unfavorable pricing contracts. We expect this to improve as spot prices are less volatile in 2023 and new contracts better reflect current market economics. EnergyAustralia’s half-year net loss was HKD 0.56 billion.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

More in Stocks

About the Author

Lorraine Tan, CFA

Regional Director
More from Author

Lorraine Tan, CFA, is a regional director for Morningstar*. She leads the Asian equity research team, which focuses on providing in-depth, fundamental equity research based on sustainable competitive advantages and long-term valuation. Tan joined Morningstar’s Singapore office in 2015.

Tan has 30 years of experience in equity research, starting with a few sell-side firms in Malaysia before moving to Singapore in 2000 with Standard & Poor’s. She has been managing teams since 1995 alongside covering a variety of sectors in the region, most recently airlines and utilities. A highlight as an analyst came in 2009 when she won the Starmine award for top stock picker in Asian Utilities and Hong Kong & China Energy and Chemicals.

Tan holds a bachelor’s degree in economics from the London School of Economics, with her special field of study being International Trade & Development. She also holds Chartered Financial Analyst® designation.

* Morningstar Investment Adviser Singapore Pte Ltd. (“Morningstar”) is a wholly owned subsidiary of Morningstar, Inc

Sponsor Center