Analyst Note| Lorraine Tan, CFA |
A bit of good news appears to be on the horizon for CK Infrastructure's, or CKI, and Power Assets', or PAH, and ultimate holding firm CK Hutchison's, U.K. utility earnings following a preliminary review by the Competition & Markets Authority, or CMA, to raise the government's proposed benchmark allowed returns for four water firms. We believe the CMA's findings has implications for the gas and electricity utilities as well and we think this will reduce the risk to the group's cash flow falling short of expectations to support current dividends. The CMA's provisional findings will now go back for responses and revisions should be made to the allowed returns for CKI's 40%-owned Northumbrian Water by the March 2021 deadline. As there should be no change to the regulated asset value of the asset used in our sum-of-parts valuation and less than a 1% change to our profit forecast for CKI, we keep our fair value estimate unchanged at HKD 61. PAH remains HKD 56.