Morgan Stanley resumed coverage on CK Infrastructure Holdings (CKI)(01038) and Power Assets Holdings (PAH)(00006) with an "equal-weight" rating, and target prices of HK54 and HK$57 respectively.
With around 50% of net profit coming from the UK, both CKI and PAH have underperformed HK utilities peers - 35.2ppt and 84ppt, respectively - since Brexit concerns arose in June 2016, said the research house.
Morgan sees near-term GBP FX risk before Brexit, currently scheduled for the end of October 2019. Both UK and Australia assets may face 10-20% negative earnings impact upon regulatory reset.
CKI's strategy of growth through acquisition worked well in past years, but its 2017
acquisitions (DUET, Reliance Home, and ista) disappointed, with only 5% ROE on average
reported in 1H results. Its high gearing suggests that further acquisitions are unlikely in the near term. Thus, Morgan expects DPS growth to remain flat or low through 2020.
For PAH, it projected earnings to decline in 2019 and 2020, but Morgan thinks flattish DPS can be maintained thanks to net cash balance.
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