

Group 1 - The core viewpoint of the report indicates that despite a 3.2% decline in electricity sales volume for Hongkong Electric (港灯-SS, 02638) in the first half of the year, the attributable profit increased by 5.7% [1] - The company maintained a distribution of 15.94 cents per unit for the first half of the year, reflecting its stable financial position [1] - DBS has adjusted its earnings forecast for Hongkong Electric and raised the target price from HKD 6.5 to HKD 7.4, while increasing the target price-to-earnings ratio from 17x to 20x to reflect improved investor sentiment [1] Group 2 - Hongkong Electric has a generation capacity of 3,617 MW and is a major electricity supplier for Hong Kong Island and Lamma Island, regulated by the Hong Kong government under the Scheme of Control Agreement (SCA) [1] - The company is investing in decarbonization initiatives and aims to phase out all coal-fired power plants by 2035, with over 50% of its electricity coming from natural gas in 2024 [1] - A liquefied natural gas terminal is under construction to facilitate the transition to gas-fired generation, which is expected to increase the proportion of natural gas generation to 70% [1] Group 3 - The report notes that global fuel price weakness will reduce net electricity fees in 2025, but Hongkong Electric enjoys stable cash flow due to its provision of highly reliable electricity supply services in a mature market [2] - The company's balance sheet remains robust, with a debt-to-capital ratio of 51.4% in the first half of 2025, stable compared to 51.1% in the first half of 2024 [2] - Approximately 73% of the company's debt structure is fixed-rate, minimizing interest rate risk, and long-term debt (over five years) accounts for 38% of total debt [2]