00006 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.

Market Performance: The HSI fell by 1.2% to 25,579 points, with significant losses in the HSCEI and HSTECH, while total market turnover reached HKD131.003 billion.

Sector Highlights: Oil stocks like PETROCHINA and CNOOC saw gains of 2.4% and 3.4%, respectively, while coal stocks also performed well, with YANKUANG ENERGY rising by 8.5%.

Inflation Impact: Inflation concerns negatively affected real estate and utility stocks, with major companies like HENDERSON LAND and SHK PPT experiencing declines of over 3%.

Tech Sector Trends: Major tech stocks such as TENCENT and BABA-W faced losses, with TENCENT dropping 1.1% and BABA-W falling 2.3%, while JD-SW managed a slight increase of 0.2%.

Market Performance: The Hang Seng Index (HSI) fell by 318 points (1.2%) to 25,579, while the Hang Seng Tech Index (HSTI) and the Hang Seng China Enterprises Index (HSCEI) also experienced declines.

Active Heavyweights: Major stocks like Alibaba, Meituan, and Tencent saw significant drops, with Alibaba closing down 2.3% and Tencent down 1.1%, amidst high short selling activity.

Notable Movers: CMOC and Nongfu Spring were among the biggest losers, dropping over 5%, while China Risun GP and Qingsong Health achieved notable gains, with China Risun GP up 18.3%.

Short Selling Trends: The report highlighted substantial short selling across various stocks, indicating bearish sentiment in the market, particularly for companies like Meituan and Techtronic Industries.

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.

UBS Research Report: UBS believes that the sale of CKI HOLDINGS' entire stake in UK Power Networks is a positive move, with the sale price exceeding their forecast by about 5%.

Valuation Insights: The sale translates to a valuation of approximately $3.7 per share for CKI HOLDINGS and $3.5 per share for POWER ASSETS based on a discounted cash flow framework.

Dividend Expectations: UBS suggests that CKI HOLDINGS is unlikely to distribute a special dividend soon, as the company is more focused on redeploying cash for potential acquisitions.

Stock Rating: UBS maintains a "Buy" rating for CKI HOLDINGS, setting a target price of $73.