Profile

The principal activity of the company is investment holding and those of the subsidiaries are the generation and supply of electricity.

The company operates a vertically integrated electricity supply business providing a highly reliable supply of electricity to 80% of Hong Kong’s population.

Outside Hong Kong, CLP holds investments in the energy sector in mainland China, India, Southeast Asia, Taiwan and Australia.I

The company also has diversified portfolio of power generating assets uses a wide range of fuels including coal, gas, nuclear and renewable sources.

Key Statistics

Price (17 March 2020) = HK$77.25

52 weeks High/Low = HK$92.95 / HK$75.60

Issued Capital (Million shares) = 2,526M

Market Capital = HK$195,168M

Key Financial Ratio (Fiscal Year : December 2019)

Current Ratio = 0.71x

Long-term Debt / Equity = 35.5%

Total Debt / Equity = 49.6%

Price / Book = 1.85x

Operating Margin = 9.1%

Net Margin = 5.4%

Return on Equity = 4.4%

Return on Assets = 2.1%

EPS = HK$1.843

Dividend per share = HK$3.08

Dividend Yield = 3.99%

Book NAV = HK$41.74

Views / Trading Strategies

# FY2019 low earnings was mainly due to a one-off goodwill impairment loss of HK$6.4bn and suppressed power generation resulted from thermal coal shortage.

# Another focus point is the gradual recovery of Australian earnings. Due to (1) = I believe that there is no more impairment; (2) = coal supply recovery to reduce fuel costs and raise power generation efficiency.

# For Hong Kong business segment, I believe power sales growth will slow to around 0.2% … mainly due to the adverse impact of the coronavirus outbreak.

# Another highlight of 2.HK is the promising dividend growth of 3.2% per annum. I believe that earnings rebound in FY2020 as the worst scenario is over with negatives mostly priced in.

# Market analysts forecast core net profit to register 15%+ CAGR between FY2019 and FY2021.

 

Risks

# The on-going regulatory reforms in Hong Kong and Australia remains a major uncertainties in the long run.

# Ever tightening environmental & emission standards remains a highly uncertain factor for the company's coal-fired operation.

# Under the current volatile financial market, volatile FX is expected to be a major financial risk.

# The long-term nature of the group's investment and operations exposes its cash flow, liquidity risk and interest rate risk.

Valuation

# There will only be mild effect on power demand in Hong Kong due to COVID-19 and bright outlook for Australian business recovery.

# Based upon the above mentioned favorable factors, I give “Buy” rating for 2.HK and accumulate the stock @ HK$75.05 (Day Low on 13 February 2018), target price = HK$84.2 (Day High on 5 March 2020 & SMA-250), providing estimated upside 9%.

I, Michael Fung, am a licensed person under the Securities and Futures Commission. Until the date this commentary was published, neither I and/or my affiliates are the beneficiary of the securities mentioned herein or are entitled to any financial interests in relation thereto.

本人冯兆山为证监会持牌人士。截至本评论文章发表日止，本人及/或其有联系者并无持有全部提及之证券的所有相关财务权益.