CLP: 2024-28 Development Plan Capital Expenditure Is Disappointing but Tariff Growth Is Decent

CLP's 2024-28 development plan is mixed, in our view, with approved capital expenditure of HKD 52.9 billion somewhat disappointing, as it represents an effective decline in investment from the 2019-23 plan after factoring in inflation. However, tariff growth is decent and accounts for rising operating expenses, in our view. Overall, we think it indicates a healthy cash flow buffer for the scheme of control operations. Pending additional information on the tariff breakdown, we leave our fair value estimate for CLP at HKD 63 per share. We expect minimal change to our earnings estimates for CLP. CLP is slightly undervalued presently. We're expecting more benign conditions, particularly for its fuel costs, and this should allow CLP to see margins improve to pre-COVID-19 levels. At the moment we expect the group operating profit margin to improve to 17% in 2025 from 12% in 2023.