Hongkong Electric Holdings Ltd, a power utility controlled by billionaire Li Ka-shing, said its first-half profits beat estimates by rising 18 percent on increased earnings from overseas operations and a one-off tax gain.

Net income climbed to HK$3.17 billion, or HK$1.49 a share, from HK$2.69 billion, or HK$1.26 a share, a year earlier, the company said in a statement to the city's stock exchange yesterday. That's more than the median estimate of HK$2.88 billion in a Bloomberg survey of four analysts.

The company has expanded into Australia, Thailand and the UK to counter slowing growth in its domestic market, comprising 550,000 customers on Hong Kong Island. Earnings from operations overseas rose 35 percent to HK$424 million, and total sales climbed 0.6 percent to HK$5.88 billion.

"Our international investments are progressing well," the smaller of Hong Kong's two power utilities said in the statement. "We will continue with our strategy of making international acquisitions so as to continue to grow our international earnings base."

Hongkong Electric shares rose 1.2 percent to HK$46.45, their highest price since July 9. The stock has advanced 3.6 percent this year compared with a 21 percent decline in the benchmark Hang Seng Index.

Earnings were also driven by a one-off deferred tax gain stemming from a corporate tax-rate cut to 16.5 percent from 17.5 percent in April, Pierre Lau and Maggie Mok, analysts at Citigroup Inc, said in an Aug 1 research report.

Hongkong Electric would also have benefited from incremental profits from the acquisition of six power plants in Canada in December, and Wellington Power Network in New Zealand in June, the analysts said.

The power provider to Hong Kong Island and Lamma Island raised its 2008 power prices by between 4 and 5 percent, the fourth-consecutive year of increases, as fuel costs continue to rise.

"The current high coal prices are expected to result in higher fuel costs for 2008, which will apply significant pressure on tariffs," the utility said.

Hongkong Electric and bigger rival CLP Holdings Ltd reached an agreement with the government on Jan 7 to cut their permitted rate of return on investments to 9.99 percent from the current range of 13.5 to 15 percent. The new system will take effect in January next year for Hongkong Electric.

Bloomberg

(HK Edition 08/06/2008 page3)