The Opportunities and Risks of CLP Holdings Limited

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CLP Holdings Limited (SEHK:0002) is one of the largest power company in Asia Pacific. The company is a key supplier of electricity in Hong Kong, supplying about 80% of the territory’s power needs. The company also owns investments in many energy companies in Australia, China, India, Southeast Asia and Taiwan.

STOCK INFORMATION

1
TICKER SYMBOL: SEHK:0002
MARKET CAP: HK$ 192.0 Billion (Updated 21 June 2016)
MARKET PRICE / SHARE: HK$ 76.00 (Updated 21 June 2016)
SECTOR: Utility
INDUSTRY: Power

THE BUSINESS

CLP Holdings Limited started out in 1901 as China Light & Power Company Syndicate in Hong Kong. It started as a power station to supply electricity in Hong Kong. After decades of consolidation, in the power industry, CLP Holdings Limited merged as the largest electricity supplier in Hong Kong. It also expanded into China since 1970s.

Today, the company serves more than 5.1 million customers and generates more than 22,000 MW of energy from its investments.

KEY STATISTICS (FY2015)

Net Revenue: HK$ 80.7 Billion
Net Income: HK$ 15.67 Billion
Total Assets: HK$ 203.96 Billion
Earnings per Share: HK$ 6.20
Dividend per Share: HK$ 2.7
Net Income Margin: 19.4%
ROE: 16.3%

KEY OPPORTUNITIES

1. Rise of Renewables
CLP Holdings has been actively investing in renewables energy source. Today, the company has more than 13% coming from renewable sources and another 6% from nuclear energy. CLP Holdings is now the largest wind developer in India and the largest foreign investor in renewable energy in China.

The company clearly sees this segment as a core growth area for them.

2. Energy Consumption in China
CLP Holdings has been investing in China for a long time. Now, it has more than 40 projects across 15 provinces in the mainland. Its projects are also diversified in term of fuel sources ranging from wind, coal, hydro, solar and nuclear.

Energy consumption in China is still growing and the Chinese government is showing strong support for renewable energy development, which CLP Holdings is well-position to capitalise on.

3. Energy Consumption in Asia
Apart from China, the company has also assets in India and Southeast Asia. Both regions are expected to experience fast growth in energy consumption. CLP Holdings is already one of the largest foreign investor in the power sector in India. The Ministry of New and Renewable Energy of India is looking to increase its renewable energy capacity by four times by 2022, signalling a huge potential for CLP Holdings.

KEY RISKS

1.Controlled Pricing
Electricity is always a sensitive industry. Many times, it operates in a regulated environment and tariff are set by the government. This means that CLP Holdings is at the mercy of each government that they are operating in. Thus, its revenue and pricing might be out of its own control.

2. Environmental Concerns
Environmental concerns are gaining momentum. If CLP Holdings is not able to execute the shift to renewable source profitably, it could see its traditional power business declining in the long run but unable to replace it with revenue from renewable sources.

VALUATION

CLP Holdings is currently trading around 12.25 times its earnings and offers a 3.6% dividend yield.

LISTED PEERS

1. Power Assets Holdings Limited (HK:0006)
2. Cheung Kong Infrastructure Holdings (HK:1038)
3. SembCorp Industries Limited (SGX: U96)

INVESTOR RELATIONS

Investor Relation Material:
Annual Report
Financial Information
Investor Relations
8 Laguna Verde Avenue,
Hung Hom, Kowloon,
Hong Kong
E-mail: ir@clp.com.hk

TOP SHAREHOLDERS DIRECT INTEREST (31 March 2016)

1. Mikado Private Trust Company – 16.12%
2. Guardian Limited – 8.87 %
3. Oak CLP Limited – 8.65%

FINANCIALS

CLP IS

Morningstar – Income Statement

CLP BS

Morningstar – Balance Sheet
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