CLP Holdings’ （the "Group" or "CLP"） primary business in Hong Kong isrobust with stable earnings predictability. The Group’s Hong Kongearnings growth was at a CAGR of 1.8% during 2008-2017. CLP’s earningsstability is due to 15-year SoC agreements, in which the newest policy will rununtil 2033. We expect CLP’s overall performance to remain stable,underpinned by strength in its Hong Kong business.
Growth markets in India and mainland China, as well as renewed qualityin CLP’s Australian assets, could open avenues for growth. During2016-2025, IEA estimates in electricity demand to grow at a CAGR of 6.1%and 3.1% in India and China, respectively. Improvements to CLP’s Australianbusiness are ahead of schedule; we expect higher earnings contribution overour forecast period.
Global energy policies are shifting away from coal-fired power towardcleaner burning natural gas and renewable-based sources. 51.4% ofCLP’s generation （equity and CPA） capacity is coal-fired. New capacityadditions will most likely come from gas-fired and renewable sources ascoal-fired generation continues to fall out of favor.
We initiate our coverage with a TP of HK$86.00 and investment rating"Accumulate". The TP represents 13.8x/14.5x/13.9x 2018E-2020E PER andcorresponds to 1.7x/1.6x/1.5x 2018E-2020E PBR. Reliable yields, earningsgrowth potential, and a relatively attractive valuation make CLP a gooddefensive play.