FY23 operating earnings improved >30% with DPS unchanged at HK$3.10
- FY23 operating earnings rebounded from HK$7.6bn in FY22 to HK$10.1bn in FY23, driven by recovery in Australia market; DPS of HK$3.10 remains unchanged
- FY23 net debt-equity ratio (adjusted for perpetual capital) remained healthy at 51.8%
- Steady increase in net asset base in Hong Kong under its 2024-28 development plan
- High price volatility in wholesale market in Australia remains a concern; a dividend yield of <5% is decent; maintain HOLD with TP of HK$66.0
CLP reported a total earnings of HK$6.66bn for FY23, up from HK$0.92bn in FY22. Excluding one-off items (such as impairment of goodwill, income related to delayed payment charges on receivables) and fair value movement, operating earnings reached HK$10.2bn, compared with HK$7.6bn in FY22, in line with management’s preliminary assessment. The improvement was driven by substantial reduction in operating losses recognized in Australia market (from a loss of HK$2.33bn in FY22 to a loss of HK$0.18bn in FY23) on normalization of wholesale electricity prices, improved power station performance and higher realized prices. With the exception of China market (which suffered loss from coal power assets), all regions reported growth in operating earnings in FY23. Fourth interim dividend of HK$1.21 per share was declared, bringing the total DPS to HK$3.10, same as last year.
CLP’s net debt-equity ratio (adjusted for perpetual capital) declined 0.8ppt from the previous year to 51.8% in FY23, which we reckon is a healthy level. Thanks to operational recovery in Australia, total debt to EBIT ratio improved substantially from 17x in FY22 to <5x in FY23. Coupled with favourable working capital movements in Hong Kong and Australia markets, free cashflow increased from HK$11.1bn in FY22 to HK$21.9bn in FY23. Debt maturity profile remained stable with 22% of total debt maturing within one year. Capex reached HK$12.8bn in FY23, down from HK$16bn in FY22.
Looking into FY24, we expect steady performance in Hong Kong where basic tariff has increased by 3.1%. Net asset base will continue to grow as capex for 2024-28 development plan has been set at HK$52.9bn to support accelerating infrastructure development for decarbonization in Hong Kong. Solid pipeline with 1.8GW and 1.2GW of renewable projects for China and India markets, respectively, will support growth in renewable capacity and power generation. Our major concern remains in the Australia market where price volatility in wholesales market remains high. Keen competition is likely to pose pressure on retail margins with high churn rate. Nevertheless, its strong cashflow will allow stable dividend. We reckon the current yield of <5% is decent. We maintain our HOLD rating with a higher TP of HK$66.00 which is based on 14x FY24 PE.