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2026-08-13 13:30:29 Citi published a research report saying that POWER ASSETS (00006.HK) delivered strong earnings in 1H, benefiting from disposal gains, but management gave more conservative guidance than market expectations on the distribution of a special dividend during the results briefing, prompting the broker to lower its TP. The report noted that POWER ASSETS' net profit in 1H surged 383% YoY to HKD14.704 billion, including aggregate disposal gains of about HKD11.686 billion from the sales of assets such as UKPN and UK Rails. Excluding the relevant items and the core earnings contribution from UKPN, core earnings from existing assets rose 24% YoY to HKD2.228 billion, mainly driven by higher returns from regulated utility assets in the UK and Australia, as well as increased interest income generated from disposal proceeds. Citi said POWER ASSETS held net cash of about HKD42.5 billion as of the end of 1H, equivalent to HKD19.94 per share. Management stated during the results briefing that it prefers to use cash for mergers and acquisitions rather than distributing a special dividend, due to concerns that such a payout would significantly reduce the company's equity base. Referring to affiliated company practices following the spin-off of HKELECTRIC-SS (02638.HK) in 2015, when special dividends were only distributed starting from 2017 to 2018, Citi expects POWER ASSETS may need two to three years to identify acquisition opportunities, with a special dividend potentially materializing no earlier than 2028 to 2029. On acquisitions, parent company CKI HOLDINGS (01038.HK) was reportedly a leading bidder last year for UK-based Thames Water, but the company has recently leaned toward debt restructuring discussions with existing creditors. Citi believes the likelihood of completing a transaction in the near term is low. Separately, CKI HOLDINGS was reported to be planning to sell EDL Energy for AUD2 billion to AUD3 billion. If the transaction materializes, the broker estimates disposal gains of about AUD500 million to AUD1 billion could be recorded. Taking into account tariff reset factors, increased interest income and weaker special dividend catalysts, Citi raised its 2026-2028 earnings forecasts for POWER ASSETS by 7% to 11%. However, due to cooled expectations for a special dividend, the broker increased the weighted average cost of capital assumption and cut the TP by 5% from HKD70 to HKD66.5, while maintaining a Buy rating, citing upside potential from possible acquisitions and a 4.9% dividend yield. (ad/da)~ AASTOCKS Financial News Website: www.aastocks.com This article was automatically translated by AI, the Chinese version should be considered the authoritative version. AASTOCKS.com Limited does not guarantee its accuracy or completeness and accepts no liability for any damages or losses arising from the use of this translation. | |