• In-line set of results
• No more special dividend
• FV of HK$55.33

1H18 Within Expectations

Power Assets Holdings Limited (PAH; stock code: 6 HK) turned in an in-line set of 1H18 results. Profit contribution from investments in the UK grew 6.3% YoY to HK$2.2b on the back of lower interest expenses after repayment of the group’s bank loans. The group’s Australian investments contributed profits grew 33.2% YoY to HK$830m, which was largely from the contribution of DUET which was acquired in May 2017. Investments in mainland China grew 43.6% YoY to HK$234m due to higher sales of electricity.

PATMI came in at HK$4.1b, which constitutes 52.1% of our fullyear forecast. The group’s balance sheet remains robust with its net cash financial position. As highlighted in our last report, special dividends are perhaps now a thing of the past. PAH has declared an interim dividend of HK$0.77 per share, which is the same as that of last year, though 1H17 also saw a special interim dividend of HK$7.50 per share.

Regulatory Resets on the Horizon

In the UK, we continue to highlight the possibility of Ofgem trimming the return on equity for network companies, though we note that there is still some time till the next regulatory period starting 2021. In Australia, SA Power Networks has already started preparations for its 2020 regulatory reset. Thus, the recent recommendations issued by the Australian Competition & Consumer Commission to reduce electricity prices could be of slight concern, though the eventual downside risk for the upcoming reset might not be as onerous as imagined.

Don’t Count the Chickens Before They Hatch

PAH is part of a consortium of CK group entities, including CK Infrastructure and CK Asset for the proposed acquisition of APA Group in Australia. At this juncture, it is highly uncertain if the deal will eventually go through, given the political sensitivities involved. This is despite our view that the CK consortium has the experience required to navigate the regulatory landscape in Australia, given its existing infrastructure assets there. We maintain our fair value estimate of HK$55.33 for now.

Source: OCBC Research - 27 Jul 2018