Morgan Stanley lifted its target price for HK Electric Investments (HKEI)(02638) to HK$8.6 from HK$7 and upgraded its rating to "overweight" from "equal-weight".
The research house said HKEI's decreased earnings and dividend cut in 2019, reflecting the return on the new SOC (Scheme of Control), have been well anticipated in advance. Cost savings should arise from loan refinancing amid falling interest rates.
HKEI would have an HK$5.85bn bond issue and HK$17.8bn in bank loans to be refinanced
in 2020 and 2021, respectively. DPS could rebound in two years. Morgan expects DPS to rebound to 2018's level in five years' time. It projected yield at 5.4% in 2024, higher than CLP's (00002) 4.6%, assuming CLP's DPS grows at 3.5% p.a.
Morgan said HKEI is the purest HK utility play, with 100% of earnings from HK: Thus. it faces minimal uncertainties from other regions, such as the regulatory and currency risks from CKI (01038) and PAH's (00006) UK assets and CLP's Australia portfolio.
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