Why Investing in Power Assets Holdings Ltd can be lucrative

Dear PGM Blog reader,

In this weekend blog article, we want to take the opportunity to discuss with you, why Investing in Power Assets Holdings Ltd (0006.HK), can be lucrative for income investors.

INTRODUCTION:

Power Assets Holdings Limited, an investment holding company, engages in the generation, transmission, and distribution of thermal and renewable power in Hong Kong, the United Kingdom, Australia, Mainland China, and internationally.

Power Assets Holdings, also distributes gas; and produces energy from waste activities.

The company is one of world’s the largest investor in power and utility-related businesses, and has a global portfolio of utility assets from United Kingdom, Australia, New Zealand, China, Netherlands, Canada, Thailand, and Portugal.

Power Assets Holdings is majority owned (38.87%) by CK Hutchison Holdings Limited, linked to none other than the billionaire, Li Ka-Shing, 23rd richest person in the world, with an estimated net worth of US$37.7 billion.

The company is also involved in property holding, consulting, financing, and trust administration activities.

The company was founded on April 9, 1976, is headquartered in Hong Kong and its shares are listed on the Hong Kong Stock Exchange under the symbol 00006.

THE HOLDINGS:

Power Assets used to be the main power generation operator in Hong Kong through its subsidiary, Hongkong Electric Company, which has been operating in Hong Kong for more than 125 years.

It operates the entire value chain of power generation for Hong Kong, from generation, transmission to distribution. The company has a total capacity of about 3,737 MW and served more than 572,000 customers.

However, in recent years, Power Assets has grown from a Hong Kong electricity supplier to a global player with investments in energy transmission and distribution across four continents.

Today Power Assets Holdings can be seen more as an investment holding company, with significant stakes in some of the world’s major utilities corporations, as can be seen from below figure.

FY 2017 FINANCIAL RESULTS:

On March 16, the company reported its FY 2017 financial results with the following highlights:

  • Profit attributable to HK$ 8,32 Billion, up 30% compared with a year ago.
  • Revenues of HK$1.42 Billion versus HK$1.29 compared with 2017.
  • The board of directors recommend a final dividend of  HK$2.03 per share – up 5% compared with a year ago – , payable on May 29, 2018, for shareholders on record of May 14, 2018.
    • The board of directors have also declared a one-off special dividend of HK$ 6.00 per share, payable on April 16, 2018, for share holders on record of April, 03, 2018.

Below chart shows the profit contribution, by reportable business segment of the company.

PGM CAPITAL ANALYSIS & COMMENTS:

Advantages:

Demand for energy is still growing, and it is expected that electricity demand would rise more than 66% from 2011 to 2035. Moreover, this growth might be even stronger in developing nations. With a strong balance sheet, Power Assets has the luxury to find the best possible investment out there for shareholders.

Power Assets Holdings is sitting on billions in cash and almost no debt, therefore, the company has the flexibility to reinvest these cash into higher return projects globally.

Expenses:

According with Forbes list 2017, the company has a market capitalization approx. 18.9 Billion US-Dollars and a net sales of 166 million US-Dollars, with only 12 employees.

In June of 2015, Power Assets Holdings Ltd sold a stake worth HK$7.68 billion (HK$990.79 million) in HK Electric Company to Qatar’s sovereign wealth fund, and holds now 33.37 percent, which  means that the company has very low operating expenses.

Dividend:

The company has been a reliable divided payer, which hasn’t missed a payment in the last 10 years, on top of this it has increased its dividend per share in the past 10 years from HK$1.85 to HK$2.72.

Below chart shows the performance of the shares of the company from the year 2000.

Above chart shows that the shares proves the very low beta of 0.46 of the shares of the company.

These are all positive signs of a great, reliable dividend stock. However compared to its peers, Power Assets Holdings produces a yield – without counting the special dividend – of 4.00%, which is on the low-side for Electric Utilities stocks.

Based, if you are an income investor, then Power Assets Holdings Limited should be on your radar. Based on this, we believe that buying the stock after the ex-dividend date of its special dividend might be a good entry point, for income investors.

Last but not least, before taking any investment decision, always take your investment horizon and risk tolerance into consideration and keep in mind that; share prices don’t move in a straight line and that Past Performance Is Not Indicative Of Future Results.

Yours sincerely,

Eric Panneflek

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