UBS: Downgrades HKELECTRIC-SS rating to "Neutral" with a target price of HKD 6
UBS released a research report stating that it has downgraded the investment rating of HKELECTRIC-SS from "Buy" to "Neutral," maintaining the target price at HKD 6. It pointed out that HKELECTRIC's stock price has risen by 20% year-to-date, outperforming Hong Kong utility stocks by about 16 percentage points, and the current price reflects its defensive nature. The bank expects that as the U.S. begins to enter a rate-cutting cycle, the yield on the U.S. 10-year Treasury bond is expected to decline from the current 4.1% to 3.8% by the end of 2025 and 3.4% by the end of 2026. This may lead to a rebound in risk appetite, with funds potentially flowing into growth stocks, diminishing the attractiveness of defensive stocks like HKELECTRIC. The bank noted that the current forward dividend yield for HKELECTRIC is 5.3%, which is a premium of 115 basis points over the U.S. 10-year Treasury yield, but is more than 1 standard deviation below the historical average; the premium over the industry average is only 11 basis points, also below the historical average of 89 basis points. The current earnings forecasts for HKELECTRIC from 2025 to 2027 are in line with market expectations. In contrast, the valuation of CK Infrastructure Holdings is more attractive, with adjustments in regulatory policies in the UK and Australia, as well as potential mergers and acquisitions, bringing more development opportunities
According to the Zhitong Finance APP, UBS has released a research report stating that it has downgraded the investment rating of HKELECTRIC-SS (02638) from "Buy" to "Neutral," maintaining the target price at HKD 6. The report points out that HKELECTRIC's stock price has risen by 20% year-to-date, outperforming Hong Kong utility stocks by about 16 percentage points, and the current price reflects its defensive nature.
The bank expects that as the U.S. begins to enter a rate-cutting cycle, the yield on the U.S. 10-year Treasury bond is expected to decline from the current 4.1% to 3.8% by the end of 2025 and 3.4% by the end of 2026. With risk appetite recovering, funds may flow into growth stocks, weakening the attractiveness of defensive stocks like HKELECTRIC.
The bank indicates that the current forward dividend yield of HKELECTRIC is 5.3%, which is a premium of 115 basis points over the U.S. 10-year Treasury yield, more than 1 standard deviation below the historical average; the premium over the industry average is only 11 basis points, also below the historical average of 89 basis points. The current earnings forecasts for HKELECTRIC from 2025 to 2027 are in line with market expectations. In contrast, the valuation of Cheung Kong Infrastructure Holdings (01038) is more attractive, and adjustments in regulatory policies in the UK and Australia, as well as potential mergers and acquisitions, also present more development opportunities
