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Asia300

CLP profit helped by overseas diversified power businesses

HONG KONG -- Hong Kong-based power supplier CLP Holdings reported on Monday a 7% increase in first-half earnings, driven by higher profits from overseas businesses that had offset an overcapacity in China's energy market.

CLP Holdings Chief Executive Richard Lancaster, center, and Vice-chairman Betty Yuen, right, announced the company’s first-half earnings on Aug. 1. (Photo by Jennifer Lo)

Net profit rose to 6.13 billion Hong Kong dollars ($790 million) in the six months ended in June, boosted by a 23.5% growth in overseas businesses to HK$2.06 billion. Revenue fell 3.3% on the year to HK$38.7 billion. The company announced an interim dividend of HK$0.57 per share for the second quarter, bringing total dividend for the first half to HK$1.14, up 3.6% from a year earlier.

The regional power utility controlled by the family of tycoon Michael Kadoorie has power assets in places such as Vietnam and Taiwan. Australia and India were among two of its brighter markets.

Operating profits in Australia jumped 82% to HK$897 million despite a 5% depreciation of the Australian dollar against the greenback. The company attributed higher earnings to more power generation and lower finance costs after repaying most of its loans, although the result was partly offset by the absence of external gas storage revenue after it sold a plant in Iona last year.

Stronger business performance was also recorded in India, where operating profits jumped 117% on higher charges at its Jhajjar coal-fired plants. Its renewable energy projects also helped grow its earnings. In June, the group made its first investment in solar energy in the country, where it has a 49% stake in a solar farm in southern India.

China effect

While its earnings in Hong Kong was steady, operating profits in mainland China fell 11% to HK$841 million on lower contribution from its coal-fired plants, where tariffs were cut due to weaker demand. But the group remains bullish on China's outlook, stressing its strategy for diversified investments in renewable energy as a buffer.

"The benefit of our diversified portfolio is that we get stability in our earnings," said Chief Executive Richard Lancaster, adding that the boost in hydropower due to abundant rainfall in recent months compensated for the loss driven by an oversupply of coal-fired energy. "China is still a market key to our [growth]."

CLP's shares closed 1.5% higher at HK$82 on Monday, marking a 26% rise this year, outperforming the Hang Sang Index's near 4% gain.  JP Morgan reiterated its "neutral" rating, citing limited upside prospects.

The investment bank, instead, warned of "potential downside" from lower-than-expected returns from a new regulatory regime, which will expire in 2018.  The proposed regime allows Hong Kong's electricity generators to earn maximum returns of 6--8% on their net fixed assets, down from the current level of 10%, as part of an attempt to reform the territory's power market and increase competition. But CLP does not foresee any threat to its earnings after 2018. Vice-chairman Betty Yuen noted that since Hong Kong's electricity market would require long-term substantial investment, the new regime should offer "reasonable returns."

Meanwhile, the territory's other power supplier Hong Kong Electric Investments opposed the idea of introducing competition as it said the current regime had worked well.

The group, a spin-off from Power Assets -- a subsidiary of CK Hutchison Holdings controlled by tycoon Li Ka-shing -- saw its first-half net profit shrink 8.6% to HK$1.1 billion. It blamed weaker earnings on rising bank loans and lower revenues on falling power sales due to milder weather.

Asked about the progress of building a floating liquefied natural gas receiving terminal off Hong Kong's coast, CLP's Yuen said the project was undergoing an environmental impact assessment, with construction expected to start in 3-4 years later.

Official statistics show that Hong Kong has generated more than half of its power from coal, compared with less than a quarter from nuclear and natural gas. While a similar LNG project overseas can cost several billions of Hong Kong dollars, Yuen justified her company's plan saying: "Diversifying Hong Kong's source of energy is our major objective, not investment."

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