【2638 Major Bank Report】Citigroup Raises Hong Kong Electric's Target Price to HK$7, Dividend Yield Reaches 4.7% but Still Less Attractive Than Another Utility Stock

SocialAnxietyStaker · 2026-03-18T03:48:12+00:00

Citigroup predicts that CLP Holdings' dividend yield can be maintained at 4.7% from 2026 to 2028, but finds the attractiveness insufficient and maintains a "neutral" rating. CLP's net profit growth last year was only 1.2%, falling short of market expectations, partly due to direct costs growing beyond expectations. In the long term, CLP's earnings will grow slowly due to the expansion of the regulated asset base. With reduced financial costs and low interest rate risk, the target price has been raised to HK$7.

SocialAnxietyStaker

2026-03-18 03:48:12

Abstract generation in progress

Citibank points out that under regulated asset return guarantees, Hong Kong Electric (02638) can maintain a dividend yield of 4.7% from 2026 to 2028, but it is only 0.5 percentage points higher than the US 10-year Treasury yield. Therefore, the 4.7% yield is not particularly attractive, and the rating for Hong Kong Electric remains “Neutral.”

Citibank states that last year, Hong Kong Electric’s net profit increased by 1.2% year-on-year to HKD 3.149 billion, which was 3.4% below market expectations. This is believed to be related to a 7.9% year-on-year increase in direct costs to HKD 6.041 billion, a higher increase than expected. In the long term, as the regulated asset base expands and with a guaranteed return rate of 8% under the regulatory agreement, Hong Kong Electric’s profits are expected to grow modestly.

Hong Kong Electric’s financial costs decreased by 8.8% last year

Currently, 73% of Hong Kong Electric’s debt is fixed-rate loans, resulting in lower interest rate risk. The average cost of debt is below 3%. Last year, financial costs decreased by 8.8% to HKD 1.284 billion.

“For every 0.25% decrease in interest rates, Hong Kong Electric’s net profit in 2026 could increase by HKD 29 million or 0.9%.”

Due to increased direct costs, Citibank has lowered its forecast for Hong Kong Electric’s net profit in 2026. However, based on the decline in the weighted average cost of capital, the target price has been raised by 6.1% to HKD 7. In Hong Kong utility stocks, Citibank prefers China Resources Power (00270), which is forecasted to have a dividend yield of 6.1% this year.

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