CKI's H1 Profit Largely in Line, but Currency Headwinds Will Continue; FVE Down to HKD 61

On the whole, CK Infrastructure's first-half results were within our expectations, with 46.4% year-on-year growth in net profit driven by the absence of a deferred tax charge that hurt year-ago profit. However, we have lowered our profit estimates by 4%-5% for 2023-26 to reflect stronger currency headwinds, leading to a reduction in our fair value estimate to HKD 61 per share from HKD 62. Mark-to-market inflation hedges at 39% owned Wales & West Utilities led to a loss at the utility, but as this is a non-cash-flow item, there is no impact to CKI’s cash flow. This will be more than offset by our estimate of a HKD 0.9 billion gain from the sale of a stake in Northumbrian Water. So, our 2022 profit forecast is little changed. We continue to like CKI and see continued growth in its dividends by 1%-2% annually. At its HKD 48.70 share price, CKI is yielding 5.2%, which provides support, and we think the company is well positioned to afford a decent acquisition in 2023 if opportunities arise.