2007/2008 Guide to Asia's Blue Chip Companies

Power

Hot investments

The International Energy Agency (IEA) announced in November that China and India together account for 45% of the increase in global primary energy demand. Plus, both countries’ energy use is forecast to double between 2005 and 2030. Oil, gas and coal continue to dominate the fuel mix. Among them, demand for coal is set to grow most rapidly, driven largely by power-sector demand in China and India.

This year, China officially overtook the US as the world’s biggest producer of CO2. Originally, it had been expected that it would take a few more years for China to catch up to its North American counterpart, but the relentless demand for energy has resulted in the obvious: China is the number one power consumer in the world, and that is not likely to change anytime soon.

As a result, a stable power supply is critical for the government as the nation struggles to achieve a surplus. Coal-fired generation still accounts for 70% of the country’s generating capacity, which certainly explains why state-run Korea Electric Power Corp has leapt into the fray. In early December, Kepco announced it would take a 34% stake in a $1.34 billion Chinese joint venture to develop coal mines and buy and build power plants over the next 50 years. Kepco plans to acquire 15 power plants, build nine power plants and develop nine coal mines in Shanxi.

The other partners in this Gemeng International Energy Co JV include China’s state-run Shanxi International Electricity Group with 47% and Deutsche Bank with 19%. The proposed 24 power plants will have a combined capacity of 9.33 million kilowatts and the coal mines are expected to produce 60 million tonnes of coal each year.

All of this can only be good news from a corporate perspective. Kepco, with a 16.7% increase in net income for the first half of 2007 (over the first half of 2006), leads the FA100 charts in revenue and net profit ranking, dwarfing its closest rival, India’s National Thermal Power Corporation.

In Hong Kong, CLP Power (CLP) announced excellent interim results, with total earnings up 23.2% to $786.5 million. In the first half, total unit sales, including both local sales and sales to the Chinese mainland grew by 2.7% over the same period last year. CLP’s interests in China, Australia, India and elsewhere in the Asia-Pacific region contributed to the group’s earnings during the first half. Though earnings on investments in the mainland and India fell slightly.

Meanwhile, in the first half of 2007, HK Electric announced a profit after tax of $405.55 million (HK$3,160 million), up from $384.44 million in the first half of 2006.

Both CLP and HK Electric lead the FA100 charts in terms of return on equity. But Hong Kong’s electricity, which is supplied by Hongkong Electric and CLP Power, may see a shakeup in coming years once their regulatory scheme of control (SOC) contract ends in 2008. The SOC, a formal, long-term regulatory contract of 15 years, signed between the private firms and the Hong Kong government has allowed the two electric utilities both rate-of-return control and price control. What the new arrangements will be will certainly impact returns for both companies.

In terms of the highest ranking by revenue growth in 2007, India’s National Thermal Power Corporation Limited (NTPC) tops the list with revenue growth of 22.1%, significantly ahead of its closest competitor CLP. However, recent concerns of a coal shortage, which may impact its ability to operate its existing and upcoming power plants has cast a shadow over operations. Keep an eye on this space next year.

Ranking by revenue
Country	Company	(million $)
SK	KEPCO	30,176.90
IN	National Thermal Power Corporation	8,247.00
CH	Huaneng Power International	5,947.59
HK	CLP Holdings	5,893.96
HK	Hongkong Electric Holdings	1,570.92

Ranking by revenue growth
Country	Company
IN	National Thermal Power Corporation	22.1%
HK	CLP Holdings	18.7%
CH	Huaneng Power International	10.2%
SK	KEPCO	7.7%
HK	Hongkong Electric Holdings	4.8%

Ranking by net profit
Country	Company	(million $)
SK	KEPCO	2,450.33
IN	National Thermal Power Corporation	1,740.10
HK	CLP Holdings	1,276.75
HK	Hongkong Electric Holdings	882.38
CH	Huaneng Power International	815.07

Ranking by ROE
Country	Company
HK	CLP Holdings	18.60%
HK	Hongkong Electric Holdings	15.95%
IN	National Thermal Power Corporation	14.72%
CH	Huaneng Power International	14.54%
SK	KEPCO	4.86%

Ranking by total points
Country	Top power company
IN	National Thermal Power Corporation	36
HK	CLP Holdings	34
SK	KEPCO	33
CH	Huaneng Power International	29
HK	Hongkong Electric Holdings	28