HK Electric Investments (2638.HK): Neutral for 5.0% Yield; Prefer Guangdong Investments with 5.7%

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11 Aug 2026 08:20:10 ET │ 14 pages

HK Electric Investments (2638.HK)

Neutral for 5.0% Yield; Prefer Guangdong Investments with 5.7%

CITI'S TAKE

We keep our Neutral rating on HK Electric Investment (‘HKEI’) as its 1H26

results were inline. It has defensive earning base making fixed 8% ROA from

HK electricity business from SOC asset base rising at 2.8% five-year CAGR.

Our 2026-28E net profits and DCF TP are unchanged. While its 5.0% 202628E yield will be decent and sustainable, it is not much higher than the

prevailing US 10-year treasury yield of 4.7%. HKEI’s DPS also lacks growth

hence this stock, in our view, is similar to a bond-like investments which

might de-rate if US$ interest rate rises. Among HK utilities, we prefer

Guangdong Investment (270 HK, Buy) with 5.7% 2026E yield.

1H25 results inline — HKEI’s profit attributable to holders of Share Stapled Units

(SSU) was +0.2% yoy to HK$1,003m in 1H26, equal to 30.4% consensus

(Bloomberg) 2026E estimate, similar to average 30.7% annual profit from 1H in last

five years (2021-25). The mild profit growth in 1H26 was driven by more electricity

sales (+2% yoy) which was partly offset by more profit contribution to tariff

stabilization fund. HKEI makes a guaranteed return (8% ROA in 1H26) on its SOC

asset base related to power industry in HK. We expect its SOC asset base to rise from

2H26E since HK government has approved its SOC capex of HK$22bn in 2024-28E,

or average HK$4.4bn pa. Interim DPS was flat yoy at HK$0.1594.

n

Neutral

Price (11 Aug 26 16:10)

HK$6.45

Target price

HK$7.00

Expected share price return

8.5%

Expected dividend yield

5.0%

Expected total return

13.5%

Market Cap

HK$56,993M

US$7,264M

Price Performance

(RIC: 2638.HK, BB: 2638 HK)

More asset base to drive mild profit growth — HKEI’s SOC capex was +12.5% yoy

to HK$1,667m in 1H26 for the construction of L13, the 4th 380MW gas-fired

combined-cycle generating unit and three (GT8, GT9 and GT10) new oil-fired opencycle gas turbine units. Its SOC capex for next 5-year period (2024-28) has been

agreed to with HK Gov’t with contract signed at HK$22bn (or HK$4.4bn pa), with

48% for generation, 42% for transmission & distribution and 10% for others.…