<Research>HSBC Research Adds HKELECTRIC-SS (02638.HK) TP to $7.2, Expects Flattish DPU Until 2028
Financial Performance: HKELECTRIC-SS reported a 5.7% increase in interim net profit to HKD 1.001 billion, with distributable income remaining flat at HKD 1.408 billion, leading HSBC Global Research to maintain a "Buy" rating and raise the target price from HKD 6.8 to HKD 7.2.
Future Projections: The broker anticipates continued profit growth for HKELECTRIC-SS in the second half of 2025 due to declining finance costs, prompting a 1% increase in profit forecasts for 2025-2027.
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HKELECTRIC-SS Launches HKD2 Billion Bond Offering
Bond Issuance: HKELECTRIC-SS successfully issued HKD2 billion in bonds, with HSBC serving as the joint global coordinator for the issuance.
Investor Interest: The bond issuance saw strong investor participation, attributed to HKELECTRIC-SS's excellent credit rating and the scarcity of its bonds in the market.
<Study>HSBC Research Evaluates Ratings and Target Prices for Hong Kong Utilities (Table)
CKI Holdings: Shares decreased by 1.943% with a short selling ratio of 14.450% and a target price of HK$65.
CLP Holdings: Shares fell by 0.513%, short selling reached $154.70M with a ratio of 34.702%, and the target price is adjusted to HK$78 -> 80.
HKElectric-SS: A minor decrease of 0.317% in shares, with short selling at $97.78K and a target price of HK$7.2.
Power Assets and HK & China Gas: Power Assets saw a 0.769% drop with a hold rating and a target price of HK$51, while HK & China Gas decreased by 0.279% with a hold rating and a target price of HK$6.6.
HSBC Research Favors CKI for Reliable Free Cash Flow and Enhanced Shareholder Returns
Hong Kong Utilities Performance: Hong Kong utilities have shown strong performance with QTD returns of 6-8%, contrasting with a 3% drop in the HSI, indicating their defensiveness against market volatility.
Market Expectations and Rate Cuts: Increased market expectations for a potential Fed rate cut in December align with the utilities sector's resilience, which has a low beta of 0.1 YTD against the HSI.
Company-Specific Catalysts: While existing businesses are generating stable cash flows, some company-specific catalysts, such as M&A activities and asset restructuring, have yet to materialize for companies like CKI Holdings and CLP Holdings.
Broker Preferences and Ratings: HSBC Global Investment Research favors CKI Holdings for its potential shareholder returns and M&A opportunities, followed by CLP Holdings, while maintaining a Hold rating for POWER ASSETS and HKCG due to their FCF challenges.
Citi Considers Electricity Tariff Reductions as Neutral, Maintains Buy Rating on CLP Holdings and Neutral Rating on HKElectric-SS
Tariff Reductions Announced: CLP Power and HKELECTRIC-SS will reduce average net tariffs starting January 2026, with CLP Power's tariff decreasing by 2.6% to HK140.6 cents per kWh and HKELECTRIC-SS's by 2.2% to HK163.3 cents per kWh.
Reason for Tariff Cuts: The reductions are attributed to decreased fuel surcharges due to lower coal and liquefied natural gas prices, which offset the impact of a basic tariff hike.
Market Analysis: Citi's research indicates that the tariff cuts are neutral for profitability since fuel costs are fully passed on to customers, maintaining a Buy rating for CLP HOLDINGS and a Neutral rating for HKELECTRIC-SS.
Target Prices Set: Citi has set a target price of HKD76 for CLP HOLDINGS and HKD6.6 for HKELECTRIC-SS following the announcement of the tariff changes.
CLP Holdings and HKElectric to Reduce Average Net Tariff by 2.6% and 2.2% Starting January 2026
Electricity Tariff Adjustments: CLP Power and HKELECTRIC-SS have announced plans to reduce their average net tariffs starting January 2026, with CLP Power decreasing by HK3.7 cents (2.6%) to HK140.6 cents per kWh and HKELECTRIC-SS by HK3.7 cents (2.2%) to HK163.3 cents per kWh.
Impact on Households: The tariff reduction is expected to save a typical three-person household approximately HKD10 per month, based on an average usage of 275 kWh of electricity.
Environment and Ecology Secretary and HK Electric, CLP Power Representatives to Address Media at 4:30 PM Regarding Next Year's Tariff Information
Electricity Tariff Announcement: Hong Kong's Secretary for Environment and Ecology, Tse Chin-wan, along with managing directors from HKELECTRIC and CLP Power, will hold a press conference to announce electricity tariff adjustments for 2026.
Expected Tariff Decrease: Sources indicate that electricity tariffs for both companies are expected to decrease by about 2% next year, with the average net electricity tariff per unit projected to drop by approximately HK3-4 cents compared to the previous year.
HKELECTRIC-SS Launches HKD2 Billion Bond Offering
Bond Issuance: HKELECTRIC-SS successfully issued HKD2 billion in bonds, with HSBC serving as the joint global coordinator for the issuance.
Investor Interest: The bond issuance saw strong investor participation, attributed to HKELECTRIC-SS's excellent credit rating and the scarcity of its bonds in the market.
<Study>HSBC Research Evaluates Ratings and Target Prices for Hong Kong Utilities (Table)
CKI Holdings: Shares decreased by 1.943% with a short selling ratio of 14.450% and a target price of HK$65.
CLP Holdings: Shares fell by 0.513%, short selling reached $154.70M with a ratio of 34.702%, and the target price is adjusted to HK$78 -> 80.
HKElectric-SS: A minor decrease of 0.317% in shares, with short selling at $97.78K and a target price of HK$7.2.
Power Assets and HK & China Gas: Power Assets saw a 0.769% drop with a hold rating and a target price of HK$51, while HK & China Gas decreased by 0.279% with a hold rating and a target price of HK$6.6.
HSBC Research Favors CKI for Reliable Free Cash Flow and Enhanced Shareholder Returns
Hong Kong Utilities Performance: Hong Kong utilities have shown strong performance with QTD returns of 6-8%, contrasting with a 3% drop in the HSI, indicating their defensiveness against market volatility.
Market Expectations and Rate Cuts: Increased market expectations for a potential Fed rate cut in December align with the utilities sector's resilience, which has a low beta of 0.1 YTD against the HSI.
Company-Specific Catalysts: While existing businesses are generating stable cash flows, some company-specific catalysts, such as M&A activities and asset restructuring, have yet to materialize for companies like CKI Holdings and CLP Holdings.
Broker Preferences and Ratings: HSBC Global Investment Research favors CKI Holdings for its potential shareholder returns and M&A opportunities, followed by CLP Holdings, while maintaining a Hold rating for POWER ASSETS and HKCG due to their FCF challenges.
Citi Considers Electricity Tariff Reductions as Neutral, Maintains Buy Rating on CLP Holdings and Neutral Rating on HKElectric-SS
Tariff Reductions Announced: CLP Power and HKELECTRIC-SS will reduce average net tariffs starting January 2026, with CLP Power's tariff decreasing by 2.6% to HK140.6 cents per kWh and HKELECTRIC-SS's by 2.2% to HK163.3 cents per kWh.
Reason for Tariff Cuts: The reductions are attributed to decreased fuel surcharges due to lower coal and liquefied natural gas prices, which offset the impact of a basic tariff hike.
Market Analysis: Citi's research indicates that the tariff cuts are neutral for profitability since fuel costs are fully passed on to customers, maintaining a Buy rating for CLP HOLDINGS and a Neutral rating for HKELECTRIC-SS.
Target Prices Set: Citi has set a target price of HKD76 for CLP HOLDINGS and HKD6.6 for HKELECTRIC-SS following the announcement of the tariff changes.
CLP Holdings and HKElectric to Reduce Average Net Tariff by 2.6% and 2.2% Starting January 2026
Electricity Tariff Adjustments: CLP Power and HKELECTRIC-SS have announced plans to reduce their average net tariffs starting January 2026, with CLP Power decreasing by HK3.7 cents (2.6%) to HK140.6 cents per kWh and HKELECTRIC-SS by HK3.7 cents (2.2%) to HK163.3 cents per kWh.
Impact on Households: The tariff reduction is expected to save a typical three-person household approximately HKD10 per month, based on an average usage of 275 kWh of electricity.
Environment and Ecology Secretary and HK Electric, CLP Power Representatives to Address Media at 4:30 PM Regarding Next Year's Tariff Information
Electricity Tariff Announcement: Hong Kong's Secretary for Environment and Ecology, Tse Chin-wan, along with managing directors from HKELECTRIC and CLP Power, will hold a press conference to announce electricity tariff adjustments for 2026.
Expected Tariff Decrease: Sources indicate that electricity tariffs for both companies are expected to decrease by about 2% next year, with the average net electricity tariff per unit projected to drop by approximately HK3-4 cents compared to the previous year.
