[ET Net News Agency, 22 July 2019] Daiwa Research lowered its target price for CK
Infrastructure Holdings (CKI)(01038) to HK$72 from HK$73 and downgraded its rating to
"outperform" from "buy" as it expects concerns to linger on the final return determination
for Northumbrian Water on 11 December.
The research house said that the UK Water Services Regulation Authority (Ofwat)
published the draft determination on the return regulation of Northumbrian Water on 18
July, indicating that the cost of capital (WACC) has been lowered to 2.19% from 3.85% in
the previous period. The base return on regulated equity (RoRE) was cut from 5.7% to 4.1%.
The further tightening of returns on the UK utility business remains an overhang for CKI.
Daiwa thinks the lowered return from the draft determination may spark negative
sentiment over regulatory pressure on CKI's UK business. However, CKI is one of the most
efficient operators in the UK and should be the least impacted from the return scrutiny by
regulators.
Daiwa lowered its 2019-21 EPS forecasts by 1.2%, mainly due to our lower GBP FX rate
assumption. (KL)