CLP Group is one of the largest investors and operators in the energy industry in the Asia-Pacific region. It operates across the energy supply chain in Hong Kong, mainland China, Australia, India, Southeast Asia and Taiwan. Its revenue for the first half of FY2022 was HK$47.594 billion (up 16.9% year on year), EBITDAF was HK$10.844 billion (-16% year on year), and net loss of HK$4.855 billion. The dividend for the first half of FY2022 was HK$0.63 per share (flat compared with the previous year).
Given that 1H22's loss was due to changes in FV, we expect stable dividend payments and fluctuations in net profit for FY2023. For the first time, we have given an increase in holdings rating, with a target price of HK$66.56.
Total revenue for the first half of FY2022 increased 16.9% year over year. This is mainly due to the increase in fuel terms and charges in Hong Kong to cover the sharp rise in fuel costs. Despite the reduction in power generation due to unplanned shutdowns and restrictions on coal supply, the Australian region still brought about a revenue increase of 5.2 billion Hong Kong dollars due to extremely high electricity prices under unprecedented electricity market conditions (without considering exchange rate effects). There was a slight increase in revenue in India, and revenue growth due to increased water resources in mainland China was partly offset by a decrease in wind resources.
Composite EBITDAF decreased by 16.3% year over year. As the company's Australian business experienced planned and unplanned power outages in the first half of FY2022 and the “National Electricity Market” (NEM)'s unprecedented triple electricity prices due to power shortages, the company settled forward hedging contracts at unfavorable prices. But on the positive side, business in mainland China grew 17.4% year over year.
Operating cash flow declined while capital expenditure increased. Free cash flow (excluding capital expenditure) turned negative due to an outflow of HK$1.6 billion from its Hong Kong control scheme business, capital expenditure excluding maintenance capital increased from HK$5.04 billion to HK$6.9 billion, of which the control plan business was HK$5.08 billion, an increase of HK$1.4 billion, and others (investment in joint ventures/intangible assets/new headquarters) were HK$508 million.
The first increase in holdings rating. We believe CLP can maintain its dividends because losses are non-cash and one-time. Earnings per share are expected to grow positively in FY2023 due to strong underlying business in mainland China and stability in Hong Kong. It currently has a yield of 4.7% and is still attractive. We expect DPS from 2022 to 2025 to grow at a compound annualized growth rate of 2.2% and reach a target price of HK$66.56, equivalent to 10.5 times FY2023 EBITDA and 22.3 times FY2023 EPS.