The analyst rating is based on several key factors:
1. Increased Permitted Return Rates: The expected increase in permitted return rates for regulated businesses in the new regulatory cycle is anticipated to consolidate investment returns, making these utilities more attractive to investors.
2. High Dividend Payouts: Hong Kong utilities are maintaining high dividend payout ratios, ranging from 77% to 96%, with dividends per share (DPS) expected to remain flat or increase slightly. This stability in dividends is appealing to income-focused investors.
3. Stable Business Characteristics: The utilities are characterized by heavy assets, high entry barriers, stable returns, and strong cash flow, aligning with the 'HALO strategy' which emphasizes these traits.
4. Profit Growth and Capital Expenditure: The increase in the average net value of fixed assets in the Hong Kong region is driving profit growth, while ongoing capital expenditures are aligned with clean transformation goals, indicating a commitment to sustainable development.
5. Development Plans: Companies like HKELECTRIC and CLP HOLDINGS are advancing their development plans for the upcoming years, which suggests a proactive approach to growth and investment.
Overall, these factors contribute to a positive outlook for Hong Kong utilities, justifying the "Buy" rating from analysts.
