Utilities Sector

• Tariff turmoil crashed S&P500 by 18% and MSCI Asia ex Japan by 13% over the past couple of weeks. But even amid this carnage, a handful of stocks have appreciated.
• These “genuine defensives” are predominantly from utilities, telecommunications and consumer staples. HK/China and Korea dominate with one entry from Singapore. They have cheap valuations, stable earnings estimates and revenue visibility.
• In addition to eleven defensives we highlight, there are other stocks that have appreciated – notably few HK pharmaceutical stocks HK and 18 Indian stocks. They are not cheap, however.

• CK Infrastructure Holdings (1038 HK)‘s share price should pick up as its portfolio of non-US infrastructure assets will become increasingly attractive.
• Its assets will benefit from re-pricing as global inflation rates trend higher. Meanwhile, it will gain from the translation of foreign earnings back to HK$.
• The secured 5.7% and 6.2% dividend yield for FY25F and FY26F makes CKI appealing, especially given a track record of 28 consecutive years of dividend hike.

• Back on the 26th March, ENN Energy (2688 HK) announced a cash/scrip Offer from ENN Natural Gas (600803 CH), its largest shareholder.
• Investors hoping for a clean (er) exit, or one where the back-end terms were clearly defined, will be disappointed. And minorities are active in this name.
• The Offer pivots on where the newly-listed H-shares trade. The IFA’s assessment on the theoretical value of these H-shares is unrealistic. 

• Announced 4Q24 results. Spruce is a leading owner- operator of residential solar power purchase agreements (PPAs) and solar lease agreements (SLAs).
• The company grows through the acquisition of mature portfolios. Spruce now owns the cash flow from ~85k home solar assets and contracts, up from 21k in 2018.
• The company offers a “Power-as-a-Service” business model and believes its own in-house technology-driven solar servicing platform is the most comprehensive on the market and hard to replicate. 

• We calculated that after the privatisation of ENN Energy (2688 HK), the EPS of ENN Natural Gas (600803 CH) will be Rmb1.94 for FY25F and Rmb2.11 for FY26F.
• By using ENN Energy’s undisturbed PER (with and without a 10% discount) and Kunlun Energy (135 HK)‘s ex-cash PER, ENN-NG H-share is worth 6.8-7.9x for FY25F and 6.3-7.2x for FY26F.
• ENN-NG H-share is hence valued at HK$14.11-16.37, implying that ENN Energy’s value under the privatisation proposal is HK$66.02-72.67, which is lower than Somerly’s HK$80 estimate.

• Kontrol Technologies reported Q4 financial results that were in line with our expectations.
• Revenue came in at $1.7M vs. our estimate of $1.8M and adjusted EBITDA was ($0.3M) vs. our estimate of ($0.2M).
• KNR repurchased 1.8M shares in 2024 and 0.7M shares in 2025 thus far, decreasing its share count by 4% since Q4/23.

• Maynilad Water Services (MYNLD PH)  (MWS) is looking to raise at least US$633m in its upcoming Philippines IPO.
• MWS is a leading global water utility player operating the largest concession by population served within a single concession area in the Philippines and Southeast Asia (SEA), as per GlobalData.
• In this note, we talk about the not-so-positive aspects of the deal.

• Maynilad Water Services (MYNLD PH) (MWS) is looking to raise at least US$633m in its upcoming Philippines IPO.
• MWS is a leading global water utility player operating the largest concession by population served within a single concession area in the Philippines and Southeast Asia (SEA), as per GlobalData.
• In this note, we talk about the positive aspects of the deal.

• We summarise the latest spreads and newsflow of merger arb situations we cover across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
• Highest spreads: ENN Energy (2688 HK), Seven & I Holdings (3382 JP), OneConnect Financial Technology (OCFT US), Insignia Financial (IFL AU), Smart Share Global (EM US), Soundwill Holdings (878 HK).
• Lowest spreads: Makino Milling Machine Co (6135 JP), Shibaura Electronics (6957 JP), PointsBet Holdings (PBH AU), Millennium & Copthorne Hotels Nz (MCK NZ), Tonami Holdings (9070 JP). 

• In the US, the third estimate of Q4/24 annualised US GDP inched up to 2.4% q-o-q (from 2.3% in the second estimate), mainly reflecting a downward revision to imports.
• Separately, February pending home sales rose 2.0% m-o-m (1.0% e / -4.6% p), rebounding slightly from a record low but remaining well below historical levels.
• The UST curve twisted steeper yesterday, with long-end yields rising to a one-month-high amid concerns over the impact of tariffs on US growth and inflation. 

• ENN Energy (2688 HK) announced a pre-conditional privatisation from ENN Natural Gas (600803 CH)/ENN-NG comprising HK$24.50 cash per share + 2.9427 ENN-NG H Shares per ENN share.
• The appraised offer value is HK$80.00 (HK$82.35, including the 2024 dividend), which is a tad optimistic. My calculations suggest a realistic offer value range of HK$71.47-76.32. 
• The offer is final. The precondition satisfaction is low-risk. A high AGM minority participation is a risk, but the scheme vote should pass as the offer terms are reasonable.   

• The proposed privatisation price for ENN Energy (2688 HK) appears reasonable, which is estimated to be 1.73x P/B and 11.5x PER on a 12-month forward basis. 
• The valuations are both at a good premium over the average since 2024. ENN Energy is also being put at the top of the sector’s PER range. 
• Scheme shareholders will hold new H-shares of ENN Natural Gas (600803 CH), which historically has a more volatile earnings record, but its A-share has been doing well. 

• ENN Natural Gas has made a pre-conditional proposal to privatise ENN Energy (2688 HK). For each ENN share, shareholders will receive 2.9427 ENN Natural Gas shares and HK$24.5 in cash.
• The ENN Natural Gas H-shares will be listed on the HKEX. The value received by ENN Energy shareholders depends on ENN Natural Gas stock performance and the H-share discount.
• The ENN Natural Gas (600803 CH) H-shares are likely to replace ENN Energy (2688 HK) in global indices and the Hang Seng Index (HSI INDEX). 

• Brian Van Abel, CFO of Xcel Energy, discusses the opportunities presented by power hungry data centers
• Xcel Energy is a large fully regulated electric and gas utility serving eight states with a market cap of approximately $40 billion
• Xcel Energy has a track record of delivering on earnings guidance and is committed to carbon reduction goals, with a 2050 carbon-free goal and plans to reduce carbon by more than 80% by 2030

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• Naturgy’s 10% self-tender offer at €26.50/share offers a 3.5% premium and ~40.6% annualized return, pending CNMV approval with settlement likely by mid-May 2025.
• Strategic negotiations may see Taqa acquire up to 29.9% from exiting funds GIP and CVC, rebalancing Naturgy’s ownership toward industrial partners and reducing geopolitical friction.
• With treasury shares reissued, free float could rise to 21%, boosting ADTV above €12 million and enhancing index eligibility, while dividend payouts remain attractive despite temporary uplift being unsustainable.

• Maynilad Water Services, Inc. (MWS) is looking to raise at least US$633mn in its upcoming Philippines IPO. The deal will be run by BPI Capital, HSBC, MS, and UBS.
• MWS is a leading global water utility player operating the largest concession by population served within a single concession area in the Philippines and Southeast Asia (SEA), as per GlobalData.
• MWS is majority owned by Maynilad Water Holding Company, Inc. (MWHCI), enjoying the support of conglomerates like Metro Pacific Investments Corporation (MPIC), DMCI Holdings, Inc. (DMCI), and Marubeni Corporation (Marubeni).

• In today’s Morning Views publication we comment on developments of the following high yield issuers: China Water Affairs, Xiaomi Corp, Nickel Industries
• In the US, Atlanta Fed President Raphael Bostic said he anticipates only one interest rate cut this year, as he now thinks “we’re going to see inflation be very bumpy and not move dramatically and in a clear way to the 2% target”.
• Mr Bostic currently projects that inflation will return to the central bank’s 2% target at some point in early 2027, in line with the Fed’s projections published last week.