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

CLP’s 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.