股

票

研 [Table_Title] Peter Shao 邵俊樨 Company Report: Power Assets (00006 HK)

究 (852) 2509 5464 EquityResearch 公司报告： 电能实业 (00006 HK) [email protected]

18 November 2020 [Table_Summary] Potential Upside to Regulatory Resets, "Accumulate"

监管重置有望迎来更好结果，“收集” 公  Power Assets Holdings ("PAH", or the "Company") is among the most [Table_Rank] 司 defensive utilities stocks listed in Hong Kong with over 90% of its earnings Rating: Accumulate

报 derived from jurisdictions where regulatory frameworks have a high level of stability and transparency. PAH's earnings outlook is stabilising as the 评级： 收集 告 recent round of regulatory resets for the Company has almost come to CompanyReport an end with potential upside to the final determination on the UK's RIIO-GD2 (the next price control for UK gas distributors effective from Apr. 6[Table_Price]-18m TP 目标价 : HK$45.00 2021) following the favourable provisional determination made by the UK's

CMA on the appeal of four water companies regarding price control. Share price 股价: HK$41.400

 We forecast 2020-2022 shareholders' profit of HK$6,308 mn (-11.5% 告

yoy), HK$6,049 mn (-4.1% yoy), and HK$6,122 mn (1.2% yoy), 证 Stock performance 报 respectively, reflecting impact from the COVID-19 pandemic and lower 券 regulatory returns amid an environment of ultra-low interest rates. We 股价表现 究 [Table_QuotePic15 % change ]

forecast 2020-2022 DPS of HK$2.800 (flat yoy), HK$2.352 (-16.0% yoy)

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and HK$2.352 (flat yoy), respectively, although in fact the Company has 10

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究 not cut its DPS (excluding special dividends) since 2006. 5 券

报  "Accumulate" with a TP of HK$45.00. We like PAH's strong defensiveness 0

告 证 and its attractive 2021 yield of 5.7% (481 bps above the 10-year US Treasury (5) EquityResearch Report yield). PAH is currently trading at 1.0x 2021 PB, more than 1 SD below its (10)

2-year average forward PB. Our TP represents a 12.5% discount to our (15)

DCF-derived NAV of HK$51.44/share and corresponds to 2021 PB and PE of (20) 1.1x and 15.9x, respectively. [Tab (25)  电能实业（“PAH”或“公司”）的股票属于香港最具防守性的公用类股票之一，公司超 (30) le_I Nov-19 Feb-20 May-20 Aug-20 Nov-20 过 90%的盈利来自于拥有较高监管透明度以及稳定性的司法管辖区。随着最近一轮监管重 HSI PAH nfo1 置接近尾声，公司盈利前景趋于稳定，而继英国竞争和市场管理局对于四间水务公司有关

价格管制的上诉作出利好暂定裁决后，英国 的最终决议有望迎来更好结果 ] RIIO-GD2 Change[Table_PriceChange] in Share Price 1 M 3 M 1 Y （RIIO-GD2 为明年 4 月起执行的英国燃气分销价格管制计划）。 电 股价变动 1 个月 3 个月 1 年 Abs. % 我们预计公司 年股东净利分别为 亿港元（同比降 ）、 亿港 0.2 (6.9) (25.0) 力  2020-2022 63.08 11.5% 60.49 绝对变动 % 元（同比降 ）和 亿港元（同比增 ），反映了新冠疫情带来的影响以及超 Rel. % to HS Index 4.1% 61.22 1.2% (8.3) (11.2) (24.2) 行 相对恒指变动 % 低利率环境下监管准许回报有所下降的情况。我们预计 2020-2022 年每股派息分别为 Avg. Share price(HK$) 业 40.7 41.6 46.5 平均股价（港元） 2.800 港元（同比持平）、2.352 港元（同比降 16.0%）和 2.352 港元（同比持平），尽 Source: Bloomberg, Guotai Junan International. ElectricitySector 管公司自 2006 年来尚未削减过每股派息（特别股息除外）。

 “收集”，目标价 45.00 港元。我们看好电能实业较高的防御性及其具有吸引力的 2021 年股息率（5.7%，高于 10 年美国国债收益率 481 个基点）。电能实业目前股价对应 1.0 倍 2021 年市净率，低于其两年平均前瞻市净率超过 1 个标准差。我们的目标价较我们用 DCF 方法得出的估值（51.44 港元/股）有 12.5%的折让，并分别对应 1.1 倍和 15.9 倍 2021 年市净率和市盈率。

[Tab le_I Y[Table_ear End Turnover Net Profit EPS EPS PER BPS PBR DPS Yield ROE 年结Profit] 收入 股东净利 每股净利 每股净利变动 市盈率 每股净资产 市净率 每股股息 股息率 净资产收益率

nfo2 12/31 (HK$ m) (HK$ m) (HK$) (△ %) (x) (HK$) (x) (HK$) (%) (%) ] 2018A 1,555 7,636 3.580 (8.2) 11.6 39.150 1.1 8.800 21.3 9.1 2019A 1,348 7,131 3.340 (6.7) 12.4 40.057 1.0 2.800 6.8 8.3 电 2020F 1,180 6,308 2.955 (11.5) 14.0 40.463 1.0 2.800 6.8 7.3 能 HK) (00006 2021F 1,148 6,049 2.834 (4.1) 14.6 40.850 1.0 2.352 5.7 6.9 实 2022F 1,156 6,122 2.869 1.2 14.4 41.600 1.0 2.352 5.7 6.9 业

[Table_BaseData]Shares in issue (m) 总股数 (m) 2,134.3 Major shareholder 大股东 Cheung Kong Infrastructure Holdings 35.96% Market cap. (HK$ m) 市值 (HK$ m) 88,360.0 Free float (%) 自由流通比率 (%) 61.1

3 month average vol. 3 个月平均成交股数 (‘000) 2,336.3 FY20 Net gearing (%) FY20 净负债/股东资金 (%) Net cash Power Assets Power 52 Weeks high/low (HK$) 52 周高/低 (HK$) 58.500/39.200 FY20 Est. NAV (HK$) FY20 每股估值（港元） 51.4

Source: the Company, Guotai Junan International.

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[Table_PageHeader]Power Assets (00006 HK)

Investment Thesis

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Power Assets Holdings ("PAH", or the "Company") is among the most defensive utilities stocks listed on the Hong

Kong Stock Exchange. PAH is a global investor in energy and utility-related businesses, with interests in the generation of thermal and renewable power, the transmission of electricity, as well as the distribution of electricity and gas. With over 90% of its earnings derived from jurisdictions where relevant regulatory frameworks have a high level of stability and transparency, PAH is among the most defensive utilities stocks listed in Hong Kong. This has been the result of PAH’s

disciplined expansion approach, which pursues a diversified, low-risk portfolio of utility businesses in well-regulated, matured 18 November2020 energy markets, including the UK, Hong Kong, Australia, Canada, the Netherlands, the US and New Zealand.

Attractive 2021 yield of 5.7% at the current share price and limited downside to valuation. While PAH has not cut its DPS since 2006, we forecast 2021 DPS to drop by 16.0% yoy to HK$2.352 due to lower permitted returns as a result of the coming regulatory resets in some of PAH’s key markets amid ultra-low interest rates. Based on the current share price, our forecasted 2021 DPS still corresponds to a yield of 5.7%, well above the current 10-year US Treasury yield of 0.9% and reflecting a yield spread of 481 bps, which is at a 10-year high. Given the large yield spread, and considering that PAH is currently trading at a 2021 PB more than 1 SD below its 2-year average forward PB, we believe much of the negative impact from the COVID-19 pandemic and expectations of lower regulatory returns have been priced in.

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PAH’s earnings outlook is stabilising as the recent round of regulatory resets in some of its key markets has almost come to an end, with potential upside to the UK’s upcoming regulatory resets for gas and electricity companies. On 28th September 2020, in its draft determination on the appeal of four UK water companies regarding price control, the Competition and Markets Authority (CMA) decided to raise the WACC assumption from 2.96% in the last price control proposal to 3.50%. Such ruling by the CMA could imply upside to the upcoming final decision on the UK’s RIIO-GD2 – the next gas distribution network price control starting from April 2021. Previously in July, the Office of Gas and Electricity Markets (Ofgem) published a draft determination on RIIO-GD2, lowering the permitted cost of equity for UK gas distributors to 3.95% (vs. 4.30%

in the original proposal). The final determination on RIIO-GD2 will be released in Dec. 2020, and Ofgem may align its decisions with CMA’s latest rulings.

(00006 HK)

1H20 Results Review and Business Outlook

1H20 core earnings was affected by the COVID-19 pandemic, but no DPS cut. Although suffered far less than companies 电能实业 from other industries, PAH is not entirely immune to the social and economic impact caused by the COVID-19 pandemic. In 1H20, PAH recorded shareholders’ profit of HK$2,262 mn, down 40.3% yoy, largely attributable to 1) a HK$780 mn non-cash

tax-related adjustment in the UK, 2) lower contribution from mainland China, 3) adverse FX changes and 4) adverse impact PowerAssets from the COVID-19 pandemic. If excluding the HK$780 mn tax-related adjustment, the FX changes (1H20: GBP/HKD -3.6% yoy, AUD/HKD -7.8% yoy), and other incomes, We estimate that 1H20 core earnings would be down by around 10.4% yoy – this primarily reflected the negative impact brought by COVID-19. Despite lower profits, 1H20 interim dividend was flat yoy at HK$0.77/share. PAH was still in a net cash position as at the end of 1H20.

Lower permitted return rates in Australia and the UK amid an environment of ultra-low interest rates. The coming regulatory resets, as well as annual adjustments, in Australia and the UK amid expectations of ultra-low interest rates will inevitably result in lower permitted return rates:

 In Australia, SA Power Networks has already entered a new 5-year regulatory period since July, with total revenue allowances of 5.5% lower and permitted ROE 2.9 ppt lower than 2015-2020 (based on June 2020 determinations). Meanwhile, Victoria Powers Networks (VPN), United Energy (UE) and Australian Gas Networks (AGN) are working with

the regulator for the next 5-year regulatory period starting July 2021. Based on the latest regulatory proposals, we expect

permitted ROE for these companies to be 2.0 ppt to 2.5 ppt lower in 2021-2026 compared with 2015-2020.

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 In the UK, from April 2021 onwards, gas distribution businesses will embrace a new regulatory framework, RIIO-GD2,

under which we expect permitted ROE to be 2.1 ppt lower compared with that under RIIO-GD1 (based on preliminary

proposals). Final determination is expected to be out in December 2020. Given the more favourable ruling on the WACC Company

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assumption for UK water companies by the CMA on 28th Sep., there is a chance that Ofgem may increase the permitted

ROE for UK gas distributors in its final determination on RIIO-GD2. ] 1 r a M t h g i R _ e l b a T [

Table-1: PAH’s Main Industry Exposure and the Relevant Regulatory Framework by Jurisdiction Jurisdiction Main Industry Exposure Regulatory Framework/ Approach / Model

UK Electricity and gas distribution RIIO model (revenue = incentives + innovations + outputs)

Hong Kong Electricity generation, transmission, distribution and retail Scheme of Control (SoC) 18 November2020 Australia Electricity and gas transmission and distribution Incentive regulation regime

PRC Electricity generation Capital cost repayment pricing model (ongoing reform) Source: the Company, Guotai Junan International.

Hong Kong business: a cash cow insulated from short- to medium-term volatility. Since Oct. 2018, HKEI (02638 HK), in which PAH holds a 33.4% stake, entered into a new Scheme of Control (SoC) agreement, which permits a return rate of 8% (excluding incentives) over HKEI’s growing regulatory asset base. The recent freeze on HKEI’s 2021 net tariff should not hinder the Company from earning its permitted return, given basic tariff (a component of net tariff) will increase by 6.9% yoy. The freeze is mainly due to the decrease in fuel cost charge (aligned with the decrease in HKEI’s actual fuel costs) and the

cancellation of special rebates (funded by the HK SAR government). Pursuant to the SoC and] 2 HKEI’sr a M developmentt h g i R _ plan,e l web a T [

expect HKEI’s earnings to grow by around 5% p.a. over the next few years.

Implications of the disposal of Iberwind: on 17 Aug. 2020, CKI Infrastructure and PAH announced the disposal of Iberwind – a Portugal wind farm operator acquired by the two companies (50% stake each) for a total consideration of EUR288 mn in 2015 (or HK$2.6 bn at the prevailing exchange rate). PAH expects to record a disposal gain of around HK$0.8 bn. In 2019, Iberwind accounted for around 3% of PAH’s shareholders’ profit. We believe the deal was mainly driven by an attractive disposal gain as well as the option to avoid the risk associated with the change from a fixed tariff to an uncertain merchant pool prices tariff

mechanism for Iberwind starting in 2020. In addition, the disposal can strengthen PAH’s cash position while better positioning the Company for future M&A activities, which have slowed down in recent years with the last major deal concluded in 2017.

Table-2: PAH’s Major Acquisitions in the Past 10 Years (00006 HK)

Target Country Completion Date Value (HK$ bn) PAH's Stake

Duet Group Australia May 2017 9.8 20.0% 电能实业 H Midstream Canada Jul. 2016 1.3 48.8% Iberwind Portugal Dec. 2015 0.3 50.0% Australian Gas Networks Australia Oct. 2014 3.8 27.5%

Dutch Enviro Energy the Netherlands Aug. 2013 1.3 20.0% PowerAssets Wales & West Utilities UK Oct .2012 3.0 30.0% UK Power Networks UK Oct. 2010 9.1 40.0% Source: the Company, Bloomberg, Guotai Junan International.

Financial Forecasts

We forecast 2020-2022 shareholders’ profit of HK$6,308 mn (-11.5% yoy), HK$6,049 mn (-4.1% yoy) and HK$6,122 mn (1.2% yoy), respectively. We expect earnings from the UK, Australia and Hong Kong to account for around 90% of PAH’s total shareholders’ profit (excluding unallocated incomes) in 2020-2022. Details regarding our forecast earnings breakdown by geography are as the follows:

 The UK: we forecast 2020 segment profit (excluding non-recurring items) of HK$3,297 mn, down by 5.5% yoy,

primarily due to negative impact from the COVID-19 pandemic, while in 2021 and 2022, we forecast segment profit of Report HK$3,178 mn and HK$3,223 mn, respectively, down by 8.9% and 7.6%, respectively, compared with 2019, due to 1) lower permitted return rates from the regulatory reset in the UK’s gas distribution sector starting from March 2021, and 2)

the downward pressure on permitted return rates for the UK’s electricity distribution businesses in the coming annual Company adjustments amid ultra-low interest rates.

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jXcVgYlVmVgXiXtVxUbR8QaQsQoOnPqQkPqRmNjMrQyQ7NnMvMNZpMtOuOrNpQ [Table_PageHeader]Power Assets (00006 HK)

 Australia: we forecast 2020-2022 segment profit of HK$1,306 mn, HK$1,179 mn and HK$1,116 mn, respectively,

9.6%, 18.4% and 22.7% lower, respectively, than in 2019, mainly due to 1) SA Power] 1 Networks’r a M t newh g regulatoryi R _ e periodl b a T [

with lower permitted return rates from July 2020 onwards, and 2) the coming regulatory resets which are expected to

result in lower permitted return rates for VPN, UE and AGN from July 2021 onwards.

 Hong Kong: we forecast 2020-2022 segment profit of HK$818 mn, HK$857 mn and HK$902 mn, respectively, as HKEI, in which PAH holds a 33.4% stake, is expected to see its earnings growing at around 5% p.a. for the next three

years under the current SoC in Hong Kong. 18 November2020  Mainland China: after the handover of PAH’s operating rights of two coal-fired plants to the respective JV partners, the Company’s earnings from the PRC will shrink considerably. For mainland China, we forecast 2020-2022 segment profit of HK$54 mn, HK$54 mn and HK$55 mn, respectively (vs. HK$415 mn in 2019).

Table-3: PAH’s Earnings Forecasts (HK$ mn) 2018 2019 2020F 2021F 2022F

Revenue 1,555 1,348 1,180 1,148 1,156 Other net income 285 582 1,124 330 337 Other operating costs (311) (170) (223) (212) (215)

] 2 r a M t h g i R _ e l b a T [

Operating profit 1,528 1,760 2,081 1,266 1,278 Finance costs (194) (96) (78) (87) (95) Share of results: JVs 4,668 4,186 2,980 3,558 3,664 Associates 1,688 1,324 1,390 1,347 1,312 Income tax (54) (43) (66) (35) (37) Shareholders' profit 7,636 7,131 6,308 6,049 6,122 - Hong Kong 1,018 777 818 857 902 - UK 4,045 3,489 2,517 3,178 3,223

- Australia 1,451 1,445 1,306 1,179 1,116 - PRC 469 415 54 54 55 - Other regions 624 576 1,347 558 564

- Unallocated items 29 429 266 223 262 (00006 HK)

Source: the Company, Guotai Junan International.

Figure-1: Earnings Contribution by Geography (Ex-unallocated or non-recurring Items), 2019 and 2020F 电能实业

10.4% 15.6% 1.0% 8.6% 2020F 11.6% PowerAssets 6.2% 2019

24.9% 21.6%

52.1%

48.0%

HK UK Australia PRC Other Regions

Source: the Company, Guotai Junan International.

We forecast 2020-2022 DPS of HK$2.800 (flat yoy), HK$2.352 (-16.0% yoy) and HK$2.352 (flat yoy), respectively, corresponding to payout ratios of 94.7%, 83.0% and 82.0%, respectively. For 2020, despite lower earnings, we expect PAH

to keep DPS flat at HK$2.800, given PAH remained in a net cash position by the end of 1H20 and enjoys relatively stable cash Report flows from its regulated businesses, most of which will remain under the same regulatory settings for the rest of the year; For 2021 and 2022, despite our projections of lower earnings compared with 2019, we expect PAH to be able to comfortably pay out

dividend of around HK$5 bn, or around HK$2.352 per share, based on our forecasts. In fact, PAH has not cut its DPS (excluding Company special dividends) since 2006.

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Valuation

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Our DCF-based valuation model generates a NAV of HK$51.28 per share, with WACC estimated at 6.2% (beta=0.6, risk-free rate=0.7%, market risk premium=9.4%), and perpetual growth rate set at nil. Our investment rating is "Accumulate" with a TP of HK$45.00, which has a 12.5% discount to the NAV. PAH is currently trading at 1.0x 2021 PB, more than 1 SD below its 2-year average, while its 2021 yield is expected to reach 5.7% based on the current share price, 481 bps above the 10-year US Treasury yield. We like PAH’s strong defensiveness and its desirable yields at the current valuation.

Our TP of HK$45.00 corresponds to 2021 PB and PE of 1.1x and 15.9x, respectively. Major downside risks include 1) 18 November2020 worse-than-expected regulatory reset results in the UK and Australia, 2) significant depreciation of GBP/AUD/NZD/CAD against HKD, and 3) resurgence of social unrest in Hong Kong.

Figure-2: PAH’s Forward PB Figure-3: PAH’s Forward PE

1.4 17

16 1.3

15 1.2 14 1.1

] 2 r a M t h g i R _ e l b a T [

13

1.0 12

0.9 11

Forward PB Mean +1 SD -1 SD Forward PE Mean +1 SD -1 SD

Source: Bloomberg, Guotai Junan International. Source: Bloomberg, Guotai Junan International.

Table-4: PAH’s DCF-Based Valuation

DCF Assumptions Calculation (HK$ mn, unless indicated otherwise)

Perpetual growth rate 0.0% PV Free Cash Flows to the Firm 61,280 (00006 HK)

PV Terminal Value 48,000 Risk free rate 0.7% Enterprise Value 109,280 Market return 10.1% - Debt 3,381 Adjusted Beta 0.6 + Cash Equivalents 3,881 电能实业 Market risk premium 9.4% - Minority Interest 0 Cost of Equity 6.3% Total NAV (HK$ mn) 109,780

Borrowing interest rate 2.3% Shares Outstanding 2,134 PowerAssets Effective tax rate 3.3% NAV per share (HK$) 51.44 Cost of Debt 2.2%

E/ (D+E) 96.2%

D/ (D+E) 3.8%

WACC 6.2%

Source: Bloomberg, the Company, Guotai Junan International.

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Table-5: Peers Comparison

Market Cap PE (fiscal year) ] 1 PBr (fiscala M year)t h g i R ROE(%) _ e l D/Y(%) b a T [

Company

Stock Code Currency Last price HKD mn 19A 20F 21F 22F 19A 20F 21F 22F 20F 20F

HK-Listed Peers

Clp Holdings Ltd 2 HK HKD 73.95 185,189 40.2 16.4 15.8 15.5 1.8 1.7 1.6 1.6 10.5 4.2

Ck Infrastructure Holdings L 1038 HK HKD 39.95 105,497 9.6 12.0 11.1 10.9 0.9 0.8 0.8 0.8 6.9 6.2

Power Assets Holdings Ltd 6 HK HKD 41.40 87,932 12.4 14.3 13.7 13.5 1.0 1.0 1.0 1.0 7.1 6.8

Hk Electric Investments -Ss 2638 HK HKD 7.89 69,541 30.0 27.9 26.3 24.8 1.4 1.4 1.4 1.4 5.0 4.1

18 November2020 Simple Average 23.0 17.6 16.7 16.2 1.3 1.2 1.2 1.2 7.4 5.3 Weighted Average 25.9 16.7 15.9 15.5 1.4 1.3 1.3 1.3 8.2 5.2

International Peers

National Grid Plc NG/ LN GBP 936.20 144,236 6.8 n.a. 12.6 11.0 2.1 2.6 2.0 2.2 (1.4) 6.1

Sse Plc SSE LN GBp 1,348.00 338,465 30.2 36.9 25.8 23.4 2.6 2.6 2.3 2.3 6.5 5.1

United Utilities Group Plc UU/ LN GBP 915.40 64,103 17.2 58.3 19.2 19.3 2.0 2.1 2.1 2.1 3.5 4.7

Apa Group APA AU AUD 10.63 70,766 43.6 39.5 40.7 35.1 3.5 3.9 4.8 5.3 7.7 4.5

Ausnet Services AST AU AUD 1.92 40,604 27.4 24.3 21.5 24.6 2.1 2.4 2.1 2.1 9.2 6.0

Vector Ltd VCT NZ NZD 4.29 22,775 51.7 45.2 33.0 31.1 1.8 1.9 2.5 2.6 4.2 4.6

Nextera Energy Inc NEE US USD 76.61 1,163,516 39.2 33.6 30.7 28.3 4.0 3.7 3.6 3.5 11.3 2.5

Duke Energy Corp DUK US USD 92.92 530,180 18.4 18.2 17.8 17.0 1.5 1.5 1.4 1.4 8.0 4.2

] 2 r a M t h g i R _ e l b a T [ Dominion Energy Inc D US USD 84.17 532,338 50.7 23.0 21.3 20.1 2.4 2.4 2.3 2.3 10.4 4.1

Southern Co. SO US USD 62.36 510,629 13.8 19.6 18.8 17.6 2.5 2.2 2.1 2.0 11.5 4.1

American Electric Power AEP US USD 86.73 333,755 22.3 20.0 18.7 17.3 2.2 2.1 1.9 1.8 10.3 3.3

Sempra Energy SRE US USD 134.06 300,624 18.1 17.5 16.7 15.9 2.2 1.8 1.8 1.7 11.7 3.1

Edp-Energias De Portugal Sa EDP PL EUR 4.45 165,417 32.5 20.7 19.1 18.1 1.9 1.8 1.8 1.7 8.4 4.3

Simple Average 28.6 29.7 22.8 21.4 2.4 2.4 2.4 2.4 7.8 4.3

Weighted Average 29.7 26.4 22.9 21.3 2.7 2.6 2.5 2.4 9.6 3.7 Source: Bloomberg, Guotai Junan International.

(00006 HK)

电能实业

PowerAssets

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Company

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Financial Statements and Ratios [Table_IncomeStatement] [Table_BalanceSheet]

Income Statement ] 1 Balancer a M Sheett h g i R _ e l b a T [

Year end 31 Dec (HKD m) 2018A 2019A 2020F 2021F 2022F Year end 31 Dec (HKD m) 2018A 2019A 2020F 2021F 2022F

Total revenue 1,555 1,348 1,180 1,148 1,156 Fixed assets 14 19 19 19 19

Direct costs (1) 0 0 0 0 Interests in JV 55,697 59,728 61,186 62,847 64,380

Other net income 285 582 1,124 330 337 Interests in associates 23,725 26,414 26,650 26,692 26,873

Other operating costs (311) (170) (223) (212) (215) Derivative financial instrument 1,375 1,212 1,294 1,253 1,273

Operating profit 1,528 1,760 2,081 1,266 1,278 Other non-current financial assets 5,100 1,100 1,155 1,097 1,152 18 November2020 Finance costs (194) (96) (78) (87) (95) Other non-current assets 51 83 68 75 69

Share of profits of associates 4,668 4,186 2,980 3,558 3,664 Total non-current assets 85,962 88,556 90,371 91,983 93,767 Share of profits of joint ventures 1,688 1,324 1,390 1,347 1,312 Profit before tax 7,690 7,174 6,374 6,084 6,160 Cash & cash equivalents 5,229 4,876 3,881 3,129 3,191

Income tax (54) (43) (66) (35) (37) Trade and other receivables 246 139 122 118 119 Profit after tax 7,636 7,131 6,308 6,049 6,122 Total current assets 5,475 5,015 4,002 3,247 3,311 Non-controlling interest 0 0 0 0 0

Shareholders' profit / loss 7,636 7,131 6,308 6,049 6,122 Total assets 91,437 93,571 94,373 95,230 97,078

Basic EPS 3.580 3.340 2.955 2.834 2.869 Trade and other payables 4,063 4,276 4,170 4,223 4,307

Diluted EPS 3.580 3.340 2.955 2.834 2.869 Other current liabilities 9 48 29 38 31

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Total current liabilities 4,072 4,324 4,198 4,261 4,338

[Table_CashFlowStatement] Cash Flow Statement Bank loans and other borrowings 3,437 3,321 3,379 3,350 3,517

Other non-current liabilities 371 434 438 435 436

Year end 31 Dec (HKD m) 2018A 2019A 2020F 2021F 2022F Total non-current liabilities 3,808 3,755 3,817 3,785 3,953

Profit before tax 7,690 7,174 6,374 6,084 6,160

Income from JV/A (6,356) (5,510) (4,371) (4,905) (4,977) Total liabilities 7,880 8,079 8,015 8,046 8,292

Working capital adjustments 1,460 (20) (86) 55 84

Income tax paid (116) 29 (69) (34) (38) Total shareholders' equity 83,557 85,492 86,359 87,184 88,786

Others operating activities (123) 176 (41) (42) (42) Minority interest 0 0 0 0 0

Cash from operating activities 2,555 1,849 1,807 1,158 1,187 Total equity 83,557 85,492 86,359 87,184 88,786

Dividends received from JV/A 4,287 3,902 3,244 3,651 3,770 (00006 HK)

[Table_FinancialRatio] Financial Ratios (Loans to)/ repyaments from JV/A 1,585 164 (39) 20 (10)

Others investing activities (5,288) (292) (88) 136 (31) 2018A 2019A 2020F 2021F 2022F

Cash from investing activities 584 3,774 3,117 3,807 3,729 Growth (yoy): 电能实业 Share of profits from JV/A 3.3% (13.3%) (20.7%) 12.2% 1.5%

Change in bank loans (3,703) 0 57 (28) 167 Shareholders' profit (8.2%) (6.6%) (11.5%) (4.1%) 1.2%

Dividend paid (18,782) (5,976) (5,976) (5,689) (5,021)

Other financing activities 0 (2) 0 0 0 Profitability:

Cash from financing activities (22,485) (5,978) (5,920) (5,717) (4,854) ROE 9.1% 8.3% 7.3% 6.9% 6.9% PowerAssets

ROA 8.4% 7.6% 6.7% 6.4% 6.3%

Cash at beg of year 24,557 5,229 4,876 3,881 3,129

Net changes in cash (19,346) (355) (995) (752) 63 Liquidity:

Effect of FX changes 18 2 0 0 0 Net gearing Net cash Net cash Net cash 0.3% 0.4%

Cash at end of year 5,229 4,876 3,881 3,129 3,191 Interest coverage 40.6x 75.7x 83.0x 70.8x 65.9x

Dividend payout ratio 78.3% 83.8% 94.7% 83.0% 82.0%

Source: the Company, Guotai Junan International.

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Company

[Table_CompanyRatingDefinition] See the last page for disclaimer Page 7 of 8 [Table_PageHeader]Power Assets (00006 HK)

Company Rating Definition

The Benchmark: Hong Kong Hang Seng Index ] 1 r a M t h g i R _ e l b a T [

Time Horizon: 6 to 18 months

Rating Definition Buy 买入 Relative Performance>15%; or the fundamental outlook of the company or sector is favorable. Accumulate 收集 Relative Performance is 5% to 15%; or the fundamental outlook of the company or sector is favorable. Neutral 中性 Relative Performance is -5% to 5%; or the fundamental outlook of the company or sector is neutral. 18 November2020 Reduce 减持 Relative Performance is -5% to -15%; or the fundamental outlook of the company or sector is unfavorable.

Sell 卖出 Relative Performance <-15%; or the fundamental outlook of the company or sector is unfavorable.

Sector[Table_ RatingIndustry DefinitionRatingDefinition] The Benchmark: Hong Kong Hang Seng Index Time Horizon: 6 to 18 months Rating Definition Outperform 跑赢大市 Relative Performance>5%;

] 2 r a M t h g i R _ e l b a T [

or the fundamental outlook of the sector is favorable. Neutral 中性 Relative Performance is -5% to 5%; or the fundamental outlook of the sector is neutral. Underperform 跑输大市 Relative Performance<-5%; Or the fundamental outlook of the sector is unfavorable.

[DISCLOSURETable_DISCLOSUREOFINTERESTS OF INTERESTS ] (1) The Analysts and their associates do not serve as an officer of the issuer mentioned in this Research Report. (2) The Analysts and their associates do not have any financial interests in relation to the issuer mentioned in this Research Report. (3) Except for GUOTAI JUNAN I (01788 HK),JXR (01951 HK),JINSHANG BANK (02558 HK),HAITIAN ANTENNA (08227 HK),Guotai Junan and its group companies do not hold equal to or more than 1% of the market capitalization of the issuer mentioned in this Research Report. (4) Guotai Junan and its group companies have not had investment banking relationships with the issuer mentioned in this Research Report

within the preceding 12 months. (00006 HK) (5) Guotai Junan and its group companies are not making a market in the securities in respect of the issuer mentioned in this Research Report. (6) Guotai Junan and its group companies have not employed an individual serving as an officer of the issuer mentioned in this Research

Report. There is no officer of the issuer mentioned in this Research Report associated with Guotai Junan and its group companies. 电能实业

DISCLAIMER PowerAssets This Research Report does not constitute an invitation or offer to acquire, purchase or subscribe for securities by Guotai Junan Securities (Hong Kong) Limited ("Guotai Junan"). Guotai Junan and its group companies may do business that relates to companies covered in research reports, including investment banking, investment services, etc. (for example, the placing agent, lead manager, sponsor, underwriter or invest proprietarily).

Any opinions expressed in this report may differ or be contrary to opinions or investment strategies expressed orally or in written form by sales persons, dealers and other professional executives of Guotai Junan group of companies. Any opinions expressed in this report may differ or be contrary to opinions or investment decisions made by the asset management and investment banking groups of Guotai Junan.

Though best effort has been made to ensure the accuracy of the information and data contained in this Research Report, Guotai Junan does not guarantee the accuracy and completeness of the information and data herein. This Research Report may contain some forward-looking estimates and forecasts derived from the assumptions of the future political and economic conditions with inherently unpredictable and mutable situation, so uncertainty may contain. Investors should understand and comprehend the investment objectives and its related risks, and where necessary consult their own financial advisers prior to any investment decision.

This Research Report is not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation or which would subject Guotai Junan and its group companies to any registration or licensing requirement within such jurisdiction.

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See the last page for disclaimer Page 8 of 8