CLP’s EnergyAustralia Losses Mount, Share Price Fall Reflects Exceptional Situation

We recognize that CLP Holdings' 6% share price fall as of midday June 21 is not unwarranted with the exceptional mark-to-market hedging losses expected to eat into the equity value of subsidiary EnergyAustralia; but we think it has limited impact on CLP’s free cash flow. CLP also warned that its Australian contributions are around HKD 1.1 billion below a year-ago's level as of end-May. As a result, CLP is expected to report a net loss for its first-half 2022 performance. To account for ongoing Australian operating challenges lasting through the full year, we have widened our assumed recurring net loss contribution to HKD 584 million from HKD 187 million. Coupled with the one-off hedging charge of HKD 7.2 billion, our full-year 2022 CLP group net profit falls to HKD 1.4 billion. Our fair value estimate drops to HKD 82 from HKD 84.