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<Research>Citi Raises HKELECTRIC-SS TP to HKD7, But Div. Yield Unattractive
Recommend 3 Positive 8 Negative 10 |
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HKELECTRIC-SS (02638.HK) saw a 1.2% YoY increase in 2025 profit attributable to holders of Share Stapled Units to HKD3.149 billion, which was 3.4% lower than market forecasts, according to a Citi research report. Citi attributed the slightly lower-than-expected earnings to a higher-than-expected growth of 7.9% YoY in direct costs to HKD6.041 billion. In the long term, HKELECTRIC-SS' earnings should grow moderately based on the regulated asset base expansion, leading to a regulatory-guaranteed 8% return on assets. Given the guaranteed return on regulated assets, HKELECTRIC-SS' sustainable dividend yield is expected to be 4.7% per annum for 2026-28. However, the 4.7% dividend yield appears unattractive, only 0.5 ppts higher than the yield on the US 10-year Treasury, with a narrowing spread. Citi has kept a Neutral rating on HKELECTRIC-SS and raised its target price from HKD6.6 to HKD7. Within the Hong Kong utilities sector, the broker prefers GUANGDONG INV (00270.HK), which has a forecast dividend yield of 6.1% for 2026. AAStocks Financial News |
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