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CLP Holdings: Low Risk Bet
on Asia’s Energy Explosion

Few places have seen more turbulence than Hong Kong the past few years. But equally, few utilities boast anything close to the continuing reliable and robust growth of CLP Holdings (HK: 2, OTC: CLPHY), notes energy sector expert, Roger Conrad, editor of Conrad’s Utility Investor.

This month, Hong Kong’s largest electric utility announced a new phase in its development, accelerating by ten years the shutdown of its entire coal-fired power plant fleet. That includes almost 10 gigawatts of operating capacity in Mainland China, 2.9 GW in Australia, 1.9 GW in India and 8.2 GW of “equity capacity” in Hong Kong.

The regulated Hong Kong utility serving 80 percent of the city’s population contributes about 65 to 70 percent of CLP’s overall EBITDA. The regulatory “Scheme of Control” there pre-approves outlays and returns through 2035, as well as automatic cost pass throughs. That ensures the coal phaseout there will add to earnings, especially as it’s squarely aligned with the energy policy of Chinese President Xi. CLP faces more challenging conditions in Australia, its second biggest market contributing 15 to 20 percent of EBITDA. But a deal with Victoria state will shut the Yallourn Power Station in mid-2028, partly replacing it with a 350-megawatt utility-scale battery station. That will significantly cut risk to wholesale market weakness down under, while ongoing expansion of renewable energy in China and India boosts the cash flow contribution from there.

CLP’s business overall has been a model of resiliency amid the pandemic, maintaining modest dividend growth despite economic disruption.

This year’s challenge for Asian utilities is the China’s energy shortages, along with much higher prices for purchased coal and natural gas.

CLP, however, should see relatively little negative impact to near-term earnings, balance sheet strength or long-term investment plans. That’s in large part because the Hong Kong utility can pass through energy costs. And out- put from its growing fleet of renewable energy and nuclear plants is not affected by rising fossil fuel costs, making it more valuable.

Despite selling in September, CLP’s ADRs traded as “CLPHY” have returned close to 10 percent year to date. And they’re not expensive at 16.8 times expected 2021 earnings, paying an attractive 4 percent plus yield. Buy below 11.

Editor’s Note: For more than 20 years, Conrad’s Utility Investor has delivered high-quality analysis and rational assessment of the best dividend-paying utilities, MLPs and dividend-paying Canadian energy names. For more information and a FREE sample issue of Conrad’s Utility Investor newsletter, visit www.ConradsUtilityInvestor.com.

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