CLP’s short-term earnings trend is skewed downwards due to the one-offdecline in earnings from the regulatory reset in Hong Kong, weakness inAustralia and India, as China remains largely stable. Electricity prices inAustralia in 1H2019 were high and are expected to remain volatile but declinegradually over the next few years. In India, new transmission asset acquisitionscould provide growth in the future while renewables are expected to provideearnings support in the short term.
We adjust our estimates for 2019E-2021E shareholders’ profit by -13.2%/-7.3%/ -7.2% to HK$11,626 mn/ HK$12,865 mn/ HK$13,122 mn,respectively. Our revisions are due to: 1） downward pressure on CLP’sAustralia business during 1H2019 which could be gradually resolved in2H2019; and 2） lower earnings in India as growth drivers may not materialize inthe short term. However, looking at the next few years, we expect CLP’s HongKong segment to resume growth, providing stable earnings, alongsideimproving conditions in Australia, new growth in India, and continued positivecontribution from non-carbon assets of CLP’s business in China.
Cut TP to HK$92.50 and maintain investment rating, "Accumulate". TheTP represents 20.1x/ 18.2x/ 17.8x 2019E-2021E PER and corresponds to 1.8x/1.8x/ 1.7x 2019E-2021E PBR. CLP’s 5-year historical average PER is 13.83xand PBR is 1.79x. We cut our TP due to short-term pressure the Companyfaces, which we think will limit upside to CLP’s share price performance in2019. However, we think CLP remains a solid defensive investment with decentyields as interest rates remain low and have a possibility of decline in 2H2019.