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<Research>HSBC Research Prefers CKI for Stable FCF Promising Better Shareholder Returns
Recommend 5 Positive 20 Negative 7 |
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Hong Kong utilities have recently outperformed the broad market index, with QTD returns touching 6-8% (vs a 3% drop in the HSI), demonstrating its strong defensiveness to market volatility, a report by HSBC Global Investment Research wrote. In parallel, market expectations for a potential rate cut by the Fed in December have increased. For the year, the sector has maintained resilience with a beta of 0.1 YTD against HSI. From a fundamental perspective, existing businesses continue to deliver stable cash flows as expected. However, the broker acknowledged that some company-specific catalysts are yet to be realized, such as CKI HOLDINGS (01038.HK)’s M&A activities, CLP HOLDINGS (00002.HK)’s divestment and/ or asset restructuring of Energy Australia, and HK & CHINA GAS (00003.HK)’s improvement in FCF. The broker now prefers CKI the most, followed by CLP and HKE. CKI is chosen as the top pick among Hong Kong utilities, thanks to its potential for better shareholder returns driven by solid FCF in addition to strong potential for additional value accretive M&As in 2026. CLP is also favored for its ample FCF, which can continuously enhance shareholder returns; whereas HKELECTRIC-SS (02638.HK), due to its complete focus on the Hong Kong electricity market, has strong defensiveness. Yet, considering its tight FCF, the likelihood of a dividend hike in the near term is deemed low. In view of the FCF crunch of POWER ASSETS (00006.HK) and HKCG, which may limit shareholder return growth, the broker maintained a Hold rating for them. The target price for CLP was raised from HKD78 to HKD80. For detailed ratings and target prices of Hong Kong utilities by HSBC Global Investment Research, please refer to the separate table. AASTOCKS Financial News Website: www.aastocks.com |
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