FY12 / 2H12 Net profit: HKD9,427m/HKD4,641m, broadly inline HSBCe: HKD9,504m/HKD4,718m
FY13/14e EPS down 1% due to PAH revisions (down 2.4-2.7%)
Remain N, TP unchanged at HKD52.0; we see CKI as aquality exposure but fully valued at present
FY12 / 2H12 net profit: HKD9,427m/HKD4,641m (HSBCe: HKD9,504m / HKD4,718m),+21.8% YoY. FY12 dividend at HKD1.66 (HSBCe and consensus: HKD1.76).
Earnings splits: Contribution from PAH was HKD3,757m (HSBCe: HKD3,908m) -weaker China and other infrastructure business explain the small miss. UK contributionwas HKD5,485m (HSBCe: HKD5,659m), the shortfall mainly because of the MTM losson derivative instruments of HKD117m recognized for Wales & West (WWU). Theoverall UK business contribution has recorded 47% growth yoy due to a full-year profitcontribution of Northumbrian Water and 20+% growth in Northern Gas Network and UKPower Networks. CKI did not report a cashflow so we will wait for the Annual Report tocheck the growth in the dividend from associates against the growth in the earnings fromassociates. In 2012, CKI’s earnings splits (before unallocated costs and after splittingPAH earnings by source) were UK 62%, HK 15%, and Australia 13%. The UK reallymatters for CKI’s earnings.
Earnings revision. FY13/14e EPS was lowered by 1% due to slightly lower earningsfrom APH, Australia, and Canada/NZ businesses.
Valuation: Our target price is based on a target price of HKD71 for Power Assets (PAH)(6 HK; Neutral; CMP HKD70.70) and regulated asset value multiples for the UK andAustralian assets. CKI is trading at a FY13e PE of 12.6x compared with its historicalaverage of 12x since 2009. Excluding PAH (based on its current share price and forecastearnings). Downside risks to our view include: regulatory resets that reduce the allowedreturn on equity.