00002 Overview

Hong Kong Utilities Performance: Hong Kong utilities are expected to see increased permitted return rates in the new regulatory cycle, with high dividend payout ratios between 77% to 96% and slight year-on-year increases in dividends.

Investment Focus: These utilities primarily invest in midstream transmission and distribution, characterized by heavy assets, stable returns, and strong cash flow, aligning with the 'HALO strategy.'

Capital Growth and Development Plans: The average net value of fixed assets in Hong Kong has risen, contributing to profit growth, while utilities like HKELECTRIC and CLP HOLDINGS are advancing their development plans for 2024-2028.

UK Market Developments: In the UK, permitted return rates for regulated businesses have increased, with CKI HOLDINGS expected to gain over $10 billion from the sale of UK Power Network assets.

BofA Securities Investment Strategy: BofA Securities recommends focusing on high-yield investments and the HALO (Heavy Assets, Low Obsolescence) theme due to rising conflicts in the Middle East, which may benefit renewable energy growth while avoiding companies impacted by high natural gas and coal prices.

CLP Holdings Upgrade: BofA Securities upgraded CLP Holdings to a "Buy" rating with a target price of $80, citing an improved outlook on free cash flow and a 4.4% dividend yield, which is considered attractive compared to peers in the sector.

Stock Performance Overview: Several stocks, including CMOC, LAOPU GOLD, and CATL, experienced declines in their share prices, with notable short selling activity and varying inflows of capital.

Short Selling Ratios: High short selling ratios were observed in stocks like LAOPU GOLD (40.445%) and JD-SW (39.739%), indicating significant bearish sentiment among investors.

Changes in HSI Constituents' Weightings: Adjustments in the weightings of certain stocks in the Hang Seng Index (HSI) were noted, with some stocks like Tencent and Alibaba seeing increases, while HSBC and CLP Holdings experienced decreases.

Outflows and Inflows: The report highlighted both inflows and outflows of capital for various stocks, with HSBC facing a significant outflow of USD 503 million, contrasting with inflows for Tencent and CATL.

Stock Performance: CKI Holdings, HKElectric, CLP Holdings, and HK & China Gas all received a "Buy" rating, while Power Assets and HK & China Gas were rated as "Hold."

Short Selling Data: CKI Holdings and CLP Holdings experienced significant short selling, with ratios of 27.817% and 37.083%, respectively, indicating investor skepticism.

Market Movements: The stocks showed positive movements, with CKI Holdings up by 0.532%, HKElectric by 1.293%, and CLP Holdings by 0.809%.

Investment Advisory: JPMorgan suggested investors consider taking profits on some Hong Kong utility stocks due to uncertainties surrounding potential US interest rate cuts.

Hong Kong Utilities Sector Performance: HSBC Global Research indicates that the Hong Kong utilities sector has shown strong defensive characteristics during global conflicts, consistently outperforming the broader market and the HSI by 7% within 60 days post-events.

Impact of Fuel Price Surges: The sector is expected to experience minimal earnings impact from fuel price increases due to the closure of the Strait of Hormuz, as regulated utilities can pass costs onto customers.

Financial Risk Management: CLP Holdings has reduced its forward contract risk exposure and implemented recovery measures, which are seen as effective in controlling financial risks.

Broker Ratings and Target Prices: HSBC maintains a Buy rating on CKI Holdings and CLP Holdings, and a Hold rating on Power Assets, with target prices remaining unchanged despite market uncertainties.

Collaboration Achievement: CLPe, a subsidiary of CLP Holdings, successfully completed Hong Kong's first liquefied natural gas (LNG) ship-to-ship bunker operation for the Very Large Crude Carrier, Maran Dione, in partnership with CNOOC on February 24.

Significance for Hong Kong: This operation underscores CLPe's capability to service various vessel types and enhances Hong Kong's status as a leading green marine fuel bunkering hub, supporting the transition to green-fuel-powered vessels.