The impact of regulatory resets was reduced, and the 2023 performance was in line with expectations. The profit due to shareholders of the company in 2023 was HK$6.03 billion, up 6% year on year. Among them, joint ventures contributed HK$3,582 million in profit, up 19.64% year on year, and joint ventures contributed HK$1,682 billion, down 5.72% year on year. From a regional perspective, the UK sector contributed HK$2,808 billion in profit, up 11.56% year on year; the Australian sector contributed HK$1,265 billion, down 5.74% year on year; HK Electric in the Hong Kong sector and other business sectors including Canada and mainland China contributed HK$1.93 billion in profit, up 7.8% year on year. The company's 2023 dividend was HK$2.82 per share, with a dividend ratio of 6.23%.
The UK sector is the main contributor to the company's profit, and the Australian sector's profit is affected by exchange. The company's UK segment had net assets of HK$41,733 billion as of the end of 2023, including UK Power Networks, Seabank Power, Northern Gas Networks and Wales & West Utilities. UK Power Networks has entered a new RIIOED2 regulatory reset period in 2022, and is expected to be reset after it expires in March 2028; other joint ventures in the UK are operating steadily, and profit contributions are in line with expectations. Northern Gas Networks is expected to enter a new regulatory reset period in the first quarter of 2025, and there are currently no suggestions for a reset. As of 2023, the company's Australian segment had net assets of HK$18.18 billion, mainly including power grid companies Victoria Power Networks, SA Power Networks, and infrastructure and service companies such as Australian Gas Infrastructure Group, United Energy, and EnergyDevelopments Pty Ltd.
HK Electric's natural gas power generation ratio increased, and the Dutch sector's subsidiary was affected by the fire and profits were affected.
As of 2023, HK Electric's net assets were HK$165.72, and other regional business segments owned the company's net assets of HK$9.416 billion. HK Electric invested HK$26.6 billion to build 2 gas power generation units in 2019-2023, and also built a joint venture with CLP to build an offshore liquefied natural gas receiving station to increase the proportion of natural gas power generation to 70%. The company expects to invest an additional HK$22 billion to help reduce carbon emissions in 2024-2028. A fire broke out in September 2023 at the plant owned by the waste-to-energy company AvrafValverWerkingB.V in the European sector, causing certain losses that affected profits, and insurance is expected to cover most of the reconstruction costs and losses. In addition to this, New Zealand's Wellington Electricity is also expected to enter new regulations and reset in the first quarter of 2025. The Jinwan Power Station in the Chinese sector will reverse losses due to falling coal prices.
Profit forecast and investment advice: We expect the company's net profit for 2024-2026 to be HK$61.76/63.38/HK$6.51 billion (unchanged), respectively. Considering that the company currently uses joint venture dividends and interest as the main cash income, and the dividend payment rate is close to 100%, we use a new cash flow discount valuation method to discount future joint venture company dividends and interest cash flows collected by the company based on the life of assets. The target price was updated to HK$52.04, corresponding to 16 times PE in 2024 (original DCF method target price) HK$42.95, +21%), maintaining the “better than the market” rating.
Risk warning: international geopolitical risk; risk of abnormal exchange rate fluctuations; infrastructure sector policy and regulatory risks in various countries and regions