Results largely in line, but special dividend decision postponed; maintain Hold
PAH’s 2015 recurring earnings were HK$8.0bn, largely in line. However, adecision on the special dividend has been pushed to around the AGM in May.We maintain Hold on PAH. The shares are trading close to our target price,which factors in a reasonable amount of value creation from potential M&As.Key things to watch for: special dividend decision, M&As and US rate hikes.
Recurring earnings largely flat yoy
Excluding one-off items, recurring earnings were largely flat yoy.
Lower earnings from HK (due to a lower stake in HKEI) and UK/Australia (dueto currency depreciation and regulatory resets) were offset by the 27.5% stakein Australian Gas Networks (AGN) acquired in 2H14 and lower expensesbooked at the holding company level (which include reversal of previousprovisions). The full year DPS is HK$2.70 (up 1% yoy).
Special dividend decision to be made later, around the AGM in May
Net cash had increased by 15% yoy to HK$58.7bn by end-2015, or HK$27.5per share. To our surprise, no special dividend was announced along with theresult. A board meeting to decide on the payment of a special dividend will behosted, if the company expects no sizable investment, by the upcoming AGMon 12 May. We still think a special dividend is likely (we assume HK$8/share),as it is difficult for PAH to fully utilize its cash. CKI management did notcomment on the possibility of another round of merger, but firmly believes nopremium over market price should be paid in this kind of merger.
SOTP target price of HK$74.4; Hold
Our target price values existing assets at HK$69.0 (including HK$8.0 as aspecial dividend to be paid) and HK$5.4 for value creation from potential M&Athat we think PAH could achieve (with total equity size of US$1.8bn). Risks:failure or success in making value-accretive M&A, and higher/lower bond yield.