Daiwa Research initiated coverage on Hong Kong Electric Investments (HKEI)(02638) with a "hold" rating, and a target price of HK$5.5.
It likes HKEI's natural monopoly status in HK Island's power industry held via its principal asset, 100%-owned Hongkong Electric Company (HEC), and Daiwa envisages no significant structural changes to the Scheme of Control (SoC), which regulates HEC's permitted rate of return on its assets.
While HKEI offers a 7.4% dividend yield for 2015, the research house believes its high dividend stream is unsustainable beyond this year.
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