2H12 results expectations: We expect FY12 net profit of HKD9,504m, up 23% and 2H net profit of HKD4,718m, down 1% hoh. We expect 2012 contribution to net profit from UK businesses at HKD5,659m, up 52% yoy with 2H up 8% hoh. Our FY12 EPS is 1% above consensus.
Target price remains HKD52 after including EnviroWaste (net impact HKD0.32) and updated HSBC currency forecasts; new regulation for gas distribution in the UK and updates for trading levels of listed securities (including CKI perpetual bonds).
Currency: GBP depreciation is a rising risk for FY13 earnings, with a 1% change in GBP:HKD having an estimated 0.4% impact on EPS and our SOTP. Our forecasts are based on HSBC’s FX research team’s GBP:HKD12.05, which is 2.5% above the current spot rate of HKD11.76. We expect the UK to contribute 48% of net profit before unallocated costs and the UK makes up 38% of our SOTP EV valuation.
Valuation: Our target price is based on a target price of HKD70 for Power Assets (PAH) (6 HK; Neutral; CMP HKD69.15) and regulated asset value multiples for the UK and Australian assets. CKI is trading at a FY13e PE of 12.5x compared with its historical average of 12x since 20 09. Excluding PAH (bas ed on its current sh are price and forecast earnings), CKI’s remaining businesses trade at an appealing FY13e PE of 9x. Downside risks to our view include regulatory resets th at reduce the allowed return on equity.