CLP’s Australian Losses Look Likely to Lessen

As was warned, CLP’s interim results were hit by noncash hedging losses and disrupted sales in Australia as well as an asset write down in India; all of which led to a net loss of HKD 4,855 million. However, recurring net profit of HKD 4,111 million was not far off from our expectation with stable Hong Kong income and strong China contributions offsetting dents elsewhere. Besides the challenges in Australia, its South East Asian and Taiwan assets also reflected an interim recurring loss due to the lagging regulatory adjustment to the higher fuel costs. The bulk of the adjustments are noncash items and with minimal change to our mid-term outlook, our fair value estimate remains at HKD 82. We believe the fixes to its Yallourn power plant and rising generating prices should help improve investor sentiment. However, we feel concerns linger over the ex-Greater China assets and we’d prefer to see some movement in its Australian partnership strategy before we get excited over the buying opportunity at the current price level. As of the August 8 share prices, we continue to prefer CKI Holdings, which trades at a slightly higher dividend yield of 5.2% versus CLP’s 4.7% .