The Company’s 2018 results missed both our and the market’sexpectations. Shareholders’ profit in 2018 declined 4.9% YoY due to itemsaffecting comparability but operating earnings rose 5.1% to HK$13,982 mndue to growth in earnings from mainland China and Australia which was onlyslightly offset by decline in Hong Kong and India. Dividend payout ratio was56.3%, up 4.7ppts YoY. DPS growth was largely in-line with recent historicaltrends.
Our estimates for 2019E-2021E shareholders’ profit are HK$ 13,390 mn/HK$ 13,884 mn/ HK$ 14,136 mn, representing YoY growth of -1.2%/ 3.7%/1.8%. Our previous revision accounted for expected weakness in earningsfrom expected decline in wholesale electricity prices, regulatory uncertainty,and retail market pressure in Australia and the full year’s impact of the newSoC in Hong Kong. Our new estimates primarily account for our expectationfor growth in CLP’s business in mainland China through its non-carbongeneration assets. Despite the expected decline in earnings in 2019 due tothe new SoC, we expect the decline to be one-off after which we expectearnings to continue growth.
Raise TP to HK$ 95.00 and maintain investment rating, "Accumulate".
The TP represents 17.9x/ 17.3x/ 17.0x 2019E-2021E PER and correspondsto 1.8x/ 1.8x/ 1.7x 2019E-2021E PBR. We think CLP remains a soliddefensive investment and with attractive yields as rising interest rates appearto be on hold. We remain confident that CLP’s business will remain stableover the medium term.