The analyst rating from HSBC Global Research is based on several key reasons:
1. Defensive Characteristics: The Hong Kong utilities sector has shown consistent defensive characteristics during major global conflicts, outperforming the broader market and the Hang Seng Index (HSI) by 7% within 60 days after such events.
2. Solid Core Fundamentals: The sector's core fundamentals are considered solid, supported by regulatory frameworks and long-term contracts that protect it from macroeconomic uncertainties and disruptions.
3. Minimal Earnings Impact: The report estimates that the sector will experience only minimal impacts on earnings from fuel price surges due to the ability of regulated utilities in Hong Kong, the UK, and Australia to pass on fuel costs to customer bills.
4. Risk Management: CLP HOLDINGS has reduced its forward contract risk exposure and implemented operational recovery measures, which helps keep its financial risk under control.
5. Limited Overall Impact: Despite potential foreign exchange translation losses for companies with significant overseas business, the overall impact on the sector is believed to be very limited.
These factors contribute to HSBC's decision to maintain a Buy rating on CKI HOLDINGS and CLP HOLDINGS, and a Hold rating on POWER ASSETS.
