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Author: kimeng   |   Latest post: Wed, 21 Aug 2019, 9:28 AM

 

CK Infrastructure Holdings Limited: Flat Interim Div – A First for CKI

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  • Flattish results and interim div
  • Monitoring overseas M&A activity
  • Still supported by search for yield

1H19 results was flattish and within expectations

CK Infrastructure Holdings (CKI) turned in a flattish YoY performance in 1H19, with PATMI at HK$5.9b; results were within expectations. Its performance was negatively affected by foreign exchange translation; without this impact, PATMI would have recorded an increase of 6%. Its bottom-line was also boosted by disposal gains.

Profit contribution from Power Assets was HK$1.36b, which was a 13% YoY decline. Its performance was adversely affected by the weakness of foreign currencies against the HKD, and a lower contribution from the UK investment portfolio. In addition, the Hong Kong business experienced reduced allowed returns under the new Scheme of Control, which commenced on 1 Jan 2019.

Despite lower returns than that of the last regime, the new framework will apply for 15 years, providing predictable returns on investment as well as growth opportunities during the new regulatory period.

Dividend growth pauses

An interim dividend of HK$0.69 per share was declared, which was the same as 1H18 (steady 29% payout ratio). This is a first for CKI which has been growing its dividends historically. However, the search for yield may still mean some support for CKI’s stock, which is generally deemed as a defensive play. Management attributed its flat dividend growth to help with building up cash for future M&A.

Overhang on stock

Meanwhile, allowable returns compression for regulated assets in UK and Australia at the upcoming resets in 2020-2023 still present downside risk to the group’s earnings during the resetting period which last for five years. To offset the negative impact, management aims to achieve better operating efficiency for its assets.

Monitoring overseas M&A activity

CKI’s dividend growth has been slowing and has now flat-lined; going forward we would monitor the group’s ability to grow via overseas acquisitions. Meantime, there would still be a place for CKI in the investor’s portfolio given its relatively more defensive nature in the current volatile environment. Based on a sum-of-the-parts valuation of the group’s various businesses, we derive a fair value estimate of HK$70 for CKI. Maintain BUY.

Source: OCBC Research - 1 Aug 2019

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