"Big Banks" Citigroup: CLP Holdings' dividend is sustainable, downgraded to Neutral, target price slightly raised to HKD 78

Citi has downgraded the rating of CLP Holdings (00002.HK) from "Buy" to "Neutral" due to the challenges posed by weakening wholesale electricity prices in Australia and the reduction of market-based electricity prices in China affecting its overseas business profit outlook. However, the bank believes that CLP should not be given a "Sell" rating, as its dividends remain sustainable supported by its Hong Kong operations.

The bank has lowered its net profit forecasts for CLP for 2026 to 2028 by 5% to 7% to reflect the downward factors in its Australian and Chinese businesses. Based on the expectation of interest rate cuts in the U.S., the bank has adopted a lower weighted average cost of capital, raising the target price by 2.6% to HKD 78, and expects a dividend yield of 4.4% in 2026, which is reasonable.

Among Hong Kong utility stocks, the bank is most optimistic about China Resources Power (00270.HK) due to its dividend yield exceeding 6%. The bank is also optimistic about CKI Holdings (01038.HK) and Power Assets Holdings (00006.HK), as the substantial proceeds from the sale of the UK electricity grid can be used for future mergers and acquisitions