29 July 2016 

EQUITIES Cheung Kong Infra (1038 HK) ELECTRIC UTILITIES 

Buy: DPS growth maintained despite earnings drop Hong Kong

 Core earnings fell in 1H16 due to expected FX weakness MAINTAIN BUY against HKD and lower regulated returns in overseas utilities  We believe DPS growth should be maintained (interim DPS: TARGET PRICE (HKD) PREVIOUS TARGET (HKD) +5%) with M&A potential as catalysts to watch 78.00 77.00  Valuation appears attractive; TP up to HKD78 (from HKD77) SHARE PRICE (HKD) UPSIDE/DOWNSIDE 68.00 +14.7% (as of 27 Jul 2016) 1H16 results within expectations. Cheung Kong Infrastructure (CKI) reported 1H16 MARKET DATA earnings at HKD5.51bn (+5% YoY). Stripping out one-off items – eg, a HKD0.8bn gain on Market cap (HKDm) 180,246 Free float 22% disposal of Spark Infrastructure in 1H16 and loss from disposal of a minor stake in HK Market cap (USDm) 23,236 BBG 1038 HK 3m ADTV (USDm) 28.7 RIC 1038.HK Electric in 1H15 – we calculate recurring profit was -13% YoY. Such performance was FINANCIALS AND RATIOS (HKD) within our expectations, given FX losses incurred from weakened GBP (after the UK Year to 12/2015a 12/2016e 12/2017e 12/2018e referendum in June 2016), AUD and NZD, against HKD, as well as lower regulated HSBC EPS 4.64 3.97 3.88 4.01 HSBC EPS (prev) - 3.95 3.78 3.92 returns resulted from resets over the past 12 months in the UK and Australia. Interim DPS Change (%) - 0.5 2.6 2.3 came in at HKD0.63 (+5% YoY), maintaining a steady growth. Consensus EPS 4.20 4.17 4.17 4.28 PE (x) 14.7 17.1 17.5 17.0 The UK (48% of 1H16 profit, ex. Power Assets’ contribution): Profit was +0.2% YoY, Dividend yield (%) 3.2 3.6 3.4 3.5 EV/EBITDA (x) 25.4 34.6 32.0 29.2 due to: 1) the UK Rails acquired in Apr 2015, which is under expansion mode, but offset ROE (%) 11.0 8.8 8.3 8.3 by 2) lower regulated returns of the UK utilities upon new resets started from 2Q15, and 52-WEEK PRICE (HKD) 3) a weakened GBP-USD. In GBP terms, profit was +7% YoY. 83.00

Australia (22%): Profit was +162% YoY, because of 1) a gain from the disposal of Spark 71.00 in June 2016; 2) a tax penalty in 1H15 causing a lower base comparison, but offset by a 59.00 3) 6% YoY drop in AUD-USD in 1H16. Excluding these one-offs, in AUD terms, we Jul 15 Jan 16 Jul 16 Target price: 78.00 calculate profit was +1% YoY, despite lower regulated returns from new resets for power High: 80.00 Low: 61.65 Current: 68.00 grids in South Australia. Source: Thomson Reuters IBES, HSBC estimates

Catalysts: We continue believe CKI is ready to strike meaningful M&As with net-gearing Evan Li* at 6% (Dec 2015: 9%), although we do not rule out the possibility of an equity share Regional Head Utility & Alternative Energy The Hongkong and Shanghai Banking Corporation Limited placement, unless its 39%-owned PAH distributes a special divided. If inflation (RPI) rises evan.m.h.li@hsbc.com.hk in the UK, regulated revenue would be adjusted up, which would be more than sufficient +852 2996 6619 to offset actual cost (eg, labour, material) increases, hence margin expansion (upside Simon Fang* Associate potential to our forecasts and consensus). The Hongkong and Shanghai Banking Corporation Limited simon.w.fang@hsbc,com.hk Maintain Buy, TP up to HKD78: Our forecast is updated to include latest project +852 2914 9973 additions and a new fair value; thus we tweak our TP to HKD78 from HKD77. CKI should Shanmuga Sundaram Arumugam* maintain stable DPS growth and remain disciplined in its focus on acquiring regulated Associate Bangalore assets, with at least a 10-12% IRR. We think both PAH and CKI have M&A potential, while bidding (privatization) of an Australian power grid in Aug 2016 could be the next * Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is catalyst to watch. After the YTD under performance in share price (-5.3%) relative to its not registered/ qualified pursuant to FINRA regulations HK utility peers (-5% to +25%), we think CKI’s 1.5x PB (peers: 1.3x-2.1x) and 3.6% yield (peers: 2.3-3.6%, ex business trust HK Electric) for 2016e seems undemanding. ✔ Vote in Asiamoney Brokers Poll 2016 4 July - 12 August HSBC group breakfast with CKI and PAH: 8:00am on 29 July 2016 in Hong Kong. If you value our service and insight, vote for HSBC Click here to vote

Disclosures & Disclaimer Issuer of report: The Hongkong and Shanghai This report must be read with the disclosures and the analyst certifications in Banking Corporation Limited the Disclosure appendix, and with the Disclaimer, which forms part of it. View HSBC Global Research at: https://www.research.hsbc.com

EQUITIES  ELECTRIC UTILITIES 29 July 2016 

1H16 results met expectations

1H16 profits +5% YoY (recurring profits: -13% YoY) Cheung Kong Infrastructure (CKI) reported 1H earnings at HKD5.51bn (+5% YoY). Stripping out one-off items – eg, a HKD0.8bn gain on disposal of Spark Infrastructure in 1H16 and loss from disposal of a minor stake in HK Electric in 1H15 – we calculate recurring profit was -13% YoY. Such performance was within our expectation, given FX losses incurred from weakened GBP (after the UK referendum in June 2016), AUD and NZD, against HKD, as well as lower regulated returns resulted from resets over the last 12 months in the UK and Australia. Interim DPS came in at HKD0.63 (+5% YoY), maintaining a steady growth.

The UK (48% of 1H16 profits): Profit was +0.2% YoY, on the back of 1) full contribution of the Each country’s percentage of CKI’s total 1H16 profits has UK Rails acquired in Apr 2015, which is under expansion mode, but offset by 2) lower regulated excluded: 1) PAH’s relevant returns of the UK utilities upon new resets started from 2Q15, and 3) a weakened GBP-USD. In contribution, which is being GBP terms, profit was +7% YoY. picked up by CKI separately, and 2) unallocated expenses Australia (22%): Profits were at +162% YoY, because of :1) a gain from the disposal of Spark in at the head office June 2016, 2) a tax penalty in 1H15 causing a lower base comparison, but offset by a 3) 6% YoY drop in AUD-USD in 1H16. If we assume 40% of the total HKD359mn tax penalty was classified under the Australia segment in 1H15, we calculate recurring profit in 1H16 in AUD terms was +1% YoY. This is a combination of better performance at the Victoria Power Network, despite lower regulated returns from recent reset for the South Australia Power Network.

Power Assets Holdings (20%): Many of CKI’s assets are co-invested with its 39%-owned associate company, Power Assets Holdings (PAH), which reported 1H16 earnings at HKD3.48bn (+7% YoY). After excluding one-off items in June 2015, we calculated recurring earnings were -8% YoY. Such earnings drop was within our expectations, given FX losses incurred after the UK referendum in June 2016 and lower regulated earnings from the utility contract renewals in the UK and Australia over the past 12 months. Interim DPS came in at HKD0.70 (+3% YoY), maintaining a steady growth.

Mainland China (2%): Profits came in at -22% YoY, because of 1) a 4% earnings drop from the toll road project in RMB terms, 2) gain on disposal of the Jiangmen Jiangsha Highway in 1H15 (HKD34mn), and 3) weaker RMB against HKD.

New Zealand (1%): Profits came in at -8% YoY, mainly because of weaker local currency against HKD. Wellington Electricity and EnviroNZ have both delivered satisfactory results. In NZD terms, earnings have rose slightly YoY.

Continental Europe (4%): Profit was +166% YoY, due to full period contribution of Portugal Renewable Energy, which was acquired in 4Q15.

Note: Each country’s percentage of CKI’s total 1H16 profits has excluded: 1) associate-PAH’s relevant contribution, which is being picked up by CKI separately and 2) unallocated expenses at the head office.

M&A opportunities remain as key catalysts

Net debt-to-equity improved to 6% as of June 2016 (Dec 2015: 9%) At 6% net debt-to-equity (headroom level) as of June 2016 (Dec 2015: 8%), we believe CKI has sufficient resources to strike another meaningful acquisition equivalent to twice the size of Eversholt Rail (completed in April 2015 at GBP2.5bn EV), which could take net gearing to 16- 17% but remain at a comfortable level from which to defend its credit rating of A-. We do not rule out the possibility of an equity share placement, which historically has been the usual

2 EQUITIES  ELECTRIC UTILITIES 29 July 2016 

fundraising channel for the company near any M&A opportunity. However, if PAH distributes a special dividend within 2016, CKI’s balance sheet would be strengthened via its 39% stake, and risks relating to a share placement would likely be played down, in our view.

What are the types of M&A opportunities being considered? CKI has stated that it believes M&A opportunities are sufficient and remains upbeat about the likelihood of winning meaningful bids within 2016. In the seller universe, opportunities could come from oil and gas companies around the world that are looking to dispose their non-core assets, and multi-utility companies aiming to deleverage or fix their balance sheets.

One of the most widely discussed topics in the media is the privatization of New South Wales power grids in Australia, with Ausgrid (second out of the total of three grids) likely to spin-off a 50.4% stake to the market and a bid should be due in August 2016, according to Bloomberg (26 July 2016). This Bloomberg article also mentioned CKI consortium and State Grid Corporation as candidates in this bid.

Dividend growth should be maintained

Although our earnings reported in HKD would contracted in 2016e due to some FX losses (particularly with more evident weakness in GBP-USD post UK referendum in June 2016), we believe DPS growth would be maintained for 2016e (1H16 interim dividend: +5% YoY).

CKI has sufficient cash reserves in HKD and non-GBP deposits, and its payout ratio of 46% (normalised) remains lower than peers’ 60-67%. CKI management could management its process of repatriating monies from foreign operations over time, in order to avoid jeopardizing its policy of maintaining a stable dividend distribution to its shareholders.

Valuation comp

Valuation comp of Hong Kong utilities Company Ticker Rating Price TP Upside/ __ Net debt to downside _____ PE ______PB ______ROE ______Dividend yield _ equity 2016e 2017e 2016e 2017e 2016e 2017e 2016e 2017e 2016e 2017e CKI 1038 HK Buy 68.00 78.00 14.7% 17.1x 17.5x 1.5x 1.4x 8.8% 8.3% 3.6% 3.4% 8.2% 7.8% PAH 6 HK Buy 75.30 83.00 10.2% 20.4x 21.9x 1.3x 1.3x 6.3% 5.8% 3.6% 3.4% -43.0% -42.5% HK Electric 2638 HK Hold 7.32 8.00 9.3% 18.1x 19.2x 1.3x 1.3x 7.3% 6.8% 5.8% 5.1% 81.4% 77.9% Source: HSBC estimates, Note: Closing prices as of 27 July 2016

Items we have considered in 2H16

 FX losses due to a weakened GBP could become more evident: In 1H16, GBP-USD fell -6% YoY, over 1H15-level. HSBC assumes GBP-USD at 1.25 in 3Q16 and 1.20 in 4Q16, which implies a -18% YoY for 2H16. These have been considered in our forecast.

 Husky deal completed in July 2016: As announced in April 2016, CKI is taking a 16.25% stake in a JV to be formed with PAH and Husky – in essence, acquiring a stake in the oil transmission pipelines that Husky owns in Canada. This deal was completed on 15 July 2016.

 AUD is likely to show strength: In 1H16, AUD-USD fell -6% YoY, over 1H15-level. HSBC assumes AUD-USD at 0.7 in 3Q16 and 4Q16, which implies a -2% YoY for 2H16. These have been considered in our forecast.

3 EQUITIES  ELECTRIC UTILITIES 29 July 2016 

Revisions of forecasts and TP

Our earnings forecasts and TP have been updated to reflect:

 The inclusion of the Husky JV where PAH would invest and take on 48.75% stake, with CKI having 16.25%. This deal was announced in April 2016 and completed on 15 July 2016.

 Updated our fair value on PAH, where we revise upwards our TP to HKD83 (from HKD78). CKI holds 39% of PAH.

Consequently, our 2016-18e earnings have been changed by 0-2%. Our DCF-based TP has been lifted to HKD78 (from HKD77).

Buy rating maintained

Trading at 1.5x 2016e PB, valuation looks undemanding compared to peers’ 1.3-2.1x. Despite its earnings sensitivity towards GBP and the UK uncertainty, we believe CKI remains a timely defensive play amid growth concerns in China. We believe CKI will remain disciplined in its focus on acquiring regulated assets in developed countries, with at least a 10-12% IRR or cash yield. Besides, CKI has a broader mandate than PAH to invest in non-energy assets, such as airports and carparks.

Charts and diagrams

1H16 earnings by segment (PAH earnings 1H16 earnings by geography (PAH separately listed) contributions allocated to CKI’s segment earnings)

1% 2% UK 2% UK 3% 4% 2% 4% 2% Australia Australia 20% Power Assets Hong Kong 49% 26% Mainland China Mainland China 63% New Zealand 22% New Zealand Continental Europe Canada, Netherlands and Others Portugal

Source: Company data, HSBC estimates Source: Company data, HSBC estimates

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Shared assets between CKI and PAH

CKHH (0001.HK)

75.67%

CKI (1038.HK) 38.87%

PAH (0006.HK)

40% 40% UK Power Networks 33.37% 40% Northumbrian Water HKEI (2638.HK) 47.1% Northern Gas Networks 41.3%

4.75% Southern Water 30% 30% Wales & West Utilities

50.% China & Thailand power investments UK Rail (Eversholt) 25% 25% Seabank Power

100% 27.9% Enviro NZ 23.1% SA Power Networks and Victoria Power Networks UK

45% 27.5% HK/China materials businesses Australian Gas Networks China

50% 50% Australia China toll roads Transmission Operations Australia

35% 20% Canada 50% Dutch Enviro Energy PNF Canada New Zealand 50% 50% Canadian Power

50% 50% Wellington Electricity

16.25% 48.75% Husky Energy

Source: Company data, Note: As of July 2016

Valuation and risks

Valuation: Our TP of HKD78 (from HKD77) is based on a DCF valuation method, with a WACC of 4.9% (risk-free rate of 3.0%, cost of equity of 5.3%, equity beta of 0.5x and cost of debt of 4%) (all unchanged vs our previous assumptions). At 14.7% implied upside, we have a Buy rating on the shares as we believe CKI is more leveraged towards M&A opportunities and defensiveness against rate hikes and inflation relative to peers.

Downside risks: weakening GBP and AUD, which could erode income from overseas businesses; a worse-than-expected outcome to the next tariff resets for businesses in Australia taking place during 2015-16; and rate hikes by the US Fed.

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Financials & valuation: Cheung Kong Infra Buy

Financial statements Valuation data Year to 12/2015a 12/2016e 12/2017e 12/2018e Year to 12/2015a 12/2016e 12/2017e 12/2018e Profit & loss summary (HKDm) EV/sales 13.4 12.5 11.5 10.5 Revenue 5,557 5,535 5,651 5,782 EV/EBITDA 25.4 34.6 32.0 29.2 EBITDA 2,935 1,998 2,034 2,076 EV/IC 0.6 0.6 0.5 0.5 Depreciation & amortisation -243 -321 -312 -304 PE* 14.7 17.1 17.5 17.0 Operating profit/EBIT 2,692 1,676 1,721 1,772 PB 1.5 1.5 1.4 1.4 Net interest -252 -977 -1,007 -1,022 FCF yield (%) 2.4 2.2 1.6 1.8 PBT 11,133 10,410 9,766 10,102 Dividend yield (%) 3.2 3.6 3.4 3.5 HSBC PBT 11,133 10,410 9,766 10,102 * Based on HSBC EPS (diluted) Taxation 8 -12 -23 -33 Net profit 11,162 10,402 9,750 10,076 HSBC net profit 11,657 9,976 9,750 10,076 Issuer information Cash flow summary (HKDm) Share price (HKD) 68.00 Free float 22% Cash flow from operations 9,106 8,487 7,569 7,711 Target price (HKD) 78.00 Sector Electric Utilities Capex -309 -206 -206 -206 Reuters (Equity) 1038.HK Country Hong Kong Cash flow from investment -1,408 3,281 5,012 5,112 Bloomberg (Equity) 1038 HK Analyst Evan Li Dividends -5,745 -6,251 -6,379 -6,177 Market cap (USDm) 23,236 Contact +852 2996 6619 Change in net debt -2,249 161 -208 -104

FCF equity 1,598 1,334 874 899 Balance sheet summary (HKDm) Price relative Intangible fixed assets 2,525 2,525 2,525 2,525 Tangible fixed assets 2,379 2,264 2,158 2,060 108.00 108.00 Current assets 9,278 10,050 10,761 11,371 98.00 98.00 Cash & others 7,897 8,288 8,960 9,527 Total assets 132,102 138,319 142,779 147,779 88.00 88.00 Operating liabilities 3,878 4,879 4,995 5,123 78.00 78.00 Gross debt 17,177 17,729 18,193 18,657 68.00 68.00 Net debt 9,280 9,441 9,234 9,130 58.00 58.00 Shareholders' funds 110,504 115,171 119,059 123,475 Invested capital 117,399 122,223 125,896 130,201 48.00 48.00 38.00 38.00 2014 2015 2016 2017 Ratio, growth and per share analysis Cheung Kong Infra Rel to HANG SENG INDEX

Year to 12/2015a 12/2016e 12/2017e 12/2018e Source: HSBC Y-o-y % change Note: Priced at close of 27 Jul 2016 Revenue -8.9 -0.4 2.1 2.3 EBITDA 49.2 -31.9 1.8 2.1 Operating profit 57.9 -37.7 2.7 2.9 PBT -65.0 -6.5 -6.2 3.4 HSBC EPS 14.4 -14.4 -2.3 3.3 Ratios (%) Revenue/IC (x) 7.8 5.1 4.8 4.8 ROIC 10.7 9.5 9.0 9.0 ROE 11.0 8.8 8.3 8.3 ROA 9.2 8.6 7.9 7.8 EBITDA margin 52.8 36.1 36.0 35.9 Operating profit margin 48.4 30.3 30.5 30.6 EBITDA/net interest (x) 11.6 2.0 2.0 2.0 Net debt/equity 8.4 8.2 7.8 7.4 Net debt/EBITDA (x) 3.2 4.7 4.5 4.4 CF from operations/net debt 98.1 89.9 82.0 84.5 Per share data (HKD) EPS Rep (diluted) 4.44 4.14 3.88 4.01 HSBC EPS (diluted) 4.64 3.97 3.88 4.01 DPS 2.15 2.45 2.30 2.37 Book value 43.97 45.83 47.38 49.13

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Disclosure appendix

Analyst Certification The following analyst(s), economist(s), and/or strategist(s) who is(are) primarily responsible for this report, certifies(y) that the opinion(s) on the subject security(ies) or issuer(s) and/or any other views or forecasts expressed herein accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: Evan Li and Simon Fang

Important disclosures Equities: Stock ratings and basis for financial analysis HSBC believes an investor's decision to buy or sell a stock should depend on individual circumstances such as the investor's existing holdings, risk tolerance and other considerations and that investors utilise various disciplines and investment horizons when making investment decisions. Ratings should not be used or relied on in isolation as investment advice. Different securities firms use a variety of ratings terms as well as different rating systems to describe their recommendations and therefore investors should carefully read the definitions of the ratings used in each research report. Further, investors should carefully read the entire research report and not infer its contents from the rating because research reports contain more complete information concerning the analysts' views and the basis for the rating.

From 23rd March 2015 HSBC has assigned ratings on the following basis: The target price is based on the analyst’s assessment of the stock’s actual current value, although we expect it to take six to 12 months for the market price to reflect this. When the target price is more than 20% above the current share price, the stock will be classified as a Buy; when it is between 5% and 20% above the current share price, the stock may be classified as a Buy or a Hold; when it is between 5% below and 5% above the current share price, the stock will be classified as a Hold; when it is between 5% and 20% below the current share price, the stock may be classified as a Hold or a Reduce; and when it is more than 20% below the current share price, the stock will be classified as a Reduce.

Our ratings are re-calibrated against these bands at the time of any 'material change' (initiation or resumption of coverage, change in target price or estimates).

Upside/Downside is the percentage difference between the target price and the share price.

Prior to this date, HSBC’s rating structure was applied on the following basis: For each stock we set a required rate of return calculated from the cost of equity for that stock’s domestic or, as appropriate, regional market established by our strategy team. The target price for a stock represented the value the analyst expected the stock to reach over our performance horizon. The performance horizon was 12 months. For a stock to be classified as Overweight, the potential return, which equals the percentage difference between the current share price and the target price, including the forecast dividend yield when indicated, had to exceed the required return by at least 5 percentage points over the succeeding 12 months (or 10 percentage points for a stock classified as Volatile*). For a stock to be classified as Underweight, the stock was expected to underperform its required return by at least 5 percentage points over the succeeding 12 months (or 10 percentage points for a stock classified as Volatile*). Stocks between these bands were classified as Neutral.

*A stock was classified as volatile if its historical volatility had exceeded 40%, if the stock had been listed for less than 12 months (unless it was in an industry or sector where volatility is low) or if the analyst expected significant volatility. However, stocks which we did not consider volatile may in fact also have behaved in such a way. Historical volatility was defined as the past month's average of the daily 365-day moving average volatilities. In order to avoid misleadingly frequent changes in rating, however, volatility had to move 2.5 percentage points past the 40% benchmark in either direction for a stock's status to change.

Rating distribution for long-term investment opportunities As of 28 July 2016, the distribution of all independent ratings published by HSBC is as follows: Buy 44% (24% of these provided with Investment Banking Services) Hold 41% (25% of these provided with Investment Banking Services) Sell 15% (18% of these provided with Investment Banking Services)

7 EQUITIES  ELECTRIC UTILITIES 29 July 2016 

For the purposes of the distribution above the following mapping structure is used during the transition from the previous to current rating models: under our previous model, Overweight = Buy, Neutral = Hold and Underweight = Sell; under our current model Buy = Buy, Hold = Hold and Reduce = Sell. For rating definitions under both models, please see “Stock ratings and basis for financial analysis” above.

For the distribution of non-independent ratings published by HSBC, please see the disclosure page available at http://www.hsbcnet.com/gbm/financial-regulation/investment-recommendations-disclosures.

Share price and rating changes for long-term investment opportunities Cheung Kong Infra (1038.HK) share price performance Rating & target price history HKD Vs HSBC rating history From To Date Analyst Neutral Overweight 09 Jun 2014 Gloria Ho Overweight Restricted 09 Jan 2015 Restricted Buy 25 Jun 2015 Evan Li 77 Buy Restricted 08 Sep 2015 Restricted Buy 25 Nov 2015 Evan Li 67 Target price Value Date Analyst 57 Price 1 54.00 09 Mar 2014 Gloria Ho Price 2 63.00 09 Jun 2014 Gloria Ho 47 Price 3 Restricted 09 Jan 2015 37 Price 4 75.00 25 Jun 2015 Evan Li Price 5 Restricted 08 Sep 2015 27 Price 6 75.00 25 Nov 2015 Evan Li Price 7 85.00 17 Feb 2016 Evan Li

Price 8 77.00 24 Jun 2016 Evan Li

Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 Source: HSBC Source: HSBC

To view a list of all the independent fundamental ratings disseminated by HSBC during the preceding 12-month period, please see the disclosure page available at www.research.hsbc.com/A/Disclosures.

HSBC & Analyst disclosures Disclosure checklist

Company Ticker Recent price Price date Disclosure CHEUNG KONG INFRA 1038.HK 68.60 28-Jul-2016 1, 5, 6, 7, 11 Source: HSBC

1 HSBC has managed or co-managed a public offering of securities for this company within the past 12 months. 2 HSBC expects to receive or intends to seek compensation for investment banking services from this company in the next 3 months. 3 At the time of publication of this report, HSBC Securities (USA) Inc. is a Market Maker in securities issued by this company. 4 As of 30 June 2016 HSBC beneficially owned 1% or more of a class of common equity securities of this company. 5 As of 31 May 2016, this company was a client of HSBC or had during the preceding 12 month period been a client of and/or paid compensation to HSBC in respect of investment banking services. 6 As of 31 May 2016, this company was a client of HSBC or had during the preceding 12 month period been a client of and/or paid compensation to HSBC in respect of non-investment banking securities-related services. 7 As of 31 May 2016, this company was a client of HSBC or had during the preceding 12 month period been a client of and/or paid compensation to HSBC in respect of non-securities services. 8 A covering analyst/s has received compensation from this company in the past 12 months. 9 A covering analyst/s or a member of his/her household has a financial interest in the securities of this company, as detailed below. 10 A covering analyst/s or a member of his/her household is an officer, director or supervisory board member of this company, as detailed below. 11 At the time of publication of this report, HSBC is a non-US Market Maker in securities issued by this company and/or in securities in respect of this company

8 EQUITIES  ELECTRIC UTILITIES 29 July 2016 

12 As of 25 July 2016, HSBC beneficially held a net long position of more than 0.5% of this company’s total issued share capital, calculated according to the SSR methodology. 13 As of 25 July 2016, HSBC beneficially held a net short position of more than 0.5% of this company’s total issued share capital, calculated according to the SSR methodology.

HSBC and its affiliates will from time to time sell to and buy from customers the securities/instruments, both equity and debt (including derivatives) of companies covered in HSBC Research on a principal or agency basis.

Analysts, economists, and strategists are paid in part by reference to the profitability of HSBC which includes investment banking, sales & trading, and principal trading revenues.

Whether, or in what time frame, an update of this analysis will be published is not determined in advance.

Economic sanctions imposed by the EU and OFAC prohibit transacting or dealing in new debt or equity of Russian SSI entities. This report does not constitute advice in relation to any securities issued by Russian SSI entities on or after July 16 2014 and as such, this report should not be construed as an inducement to transact in any sanctioned securities.

For disclosures in respect of any company mentioned in this report, please see the most recently published report on that company available at www.hsbcnet.com/research. In order to find out more about the proprietary models used to produce this report, please contact the authoring analyst.

Additional disclosures 1 This report is dated as at 29 July 2016.

2 All market data included in this report are dated as at close 27 July 2016, unless a different date and/or a specific time of day is indicated in the report.

3 HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its Research business. HSBC's analysts and its other staff who are involved in the preparation and dissemination of Research operate and have a management reporting line independent of HSBC's Investment Banking business. Information Barrier procedures are in place between the Investment Banking, Principal Trading, and Research businesses to ensure that any confidential and/or price sensitive information is handled in an appropriate manner.

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Production & distribution disclosures 1 This report was produced and signed off by the author on 28 Jul 2016 16:44 GMT.

2 In order to see when this report was first disseminated please see the disclosure page available at https://www.research.hsbc.com/R/34/VTplRz7

9 EQUITIES  ELECTRIC UTILITIES 29 July 2016 

Disclaimer

Legal entities as at 1 July 2016 Issuer of report ‘UAE’ HSBC Bank Middle East Limited, Dubai; ‘HK’ The Hongkong and Shanghai Banking Corporation Limited, Hong Kong; ‘TW’ The Hongkong and Shanghai Banking HSBC Securities (Taiwan) Corporation Limited; 'CA' HSBC Bank Canada, Toronto; HSBC Bank, Paris Branch; HSBC France; ‘DE’ Corporation Limited HSBC Trinkaus & Burkhardt AG, Düsseldorf; 000 HSBC Bank (RR), Moscow; ‘IN’ HSBC Securities and Capital Markets (India) Private Level 19, 1 Queen’s Road Central Limited, Mumbai; ‘JP’ HSBC Securities (Japan) Limited, Tokyo; ‘EG’ HSBC Securities Egypt SAE, Cairo; ‘CN’ HSBC Investment Bank Hong Kong SAR Asia Limited, Beijing Representative Office; The Hongkong and Shanghai Banking Corporation Limited, Singapore Branch; The Telephone: +852 2843 9111 Hongkong and Shanghai Banking Corporation Limited, Seoul Securities Branch; The Hongkong and Shanghai Banking Corporation Fax: +852 2596 0200 Limited, Seoul Branch; HSBC Securities (South Africa) (Pty) Ltd, Johannesburg; HSBC Bank plc, London, Madrid, Milan, Stockholm, Website: www.research.hsbc.com Tel Aviv; ‘US’ HSBC Securities (USA) Inc, New York; HSBC Yatirim Menkul Degerler AS, Istanbul; HSBC México, SA, Institución de Banca Múltiple, Grupo Financiero HSBC; HSBC Bank Australia Limited; HSBC Bank Argentina SA; HSBC Saudi Arabia Limited; The Hongkong and Shanghai Banking Corporation Limited, New Zealand Branch incorporated in Hong Kong SAR; The Hongkong and Shanghai Banking Corporation Limited, Bangkok Branch This document has been issued by The Hongkong and Shanghai Banking Corporation Limited (“HSBC”) in the conduct of its Hong Kong regulated business for the information of its institutional and professional investor (as defined by Securities and Future Ordinance (Chapter 571)) customers; it is not intended for and should not be distributed to retail customers in Hong Kong. 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10 

Global Natural Resources & Energy Research Team

Metals and Mining Latam Asia Lily Yang, CFA 1 212 525 0990 Regional Head Utility & Alternative Energy EMEA [email protected] Evan Li +852 2996 6619 Emma Townshend +27 21 794 8345 [email protected] [email protected] Asia Head of Resources & Energy Research, Jigar Mistry, CFA +91 22 2268 1079 Derryn Maade +27 11 676 4519 Asia-Pacific [email protected] [email protected] Thomas C. Hilboldt, CFA +852 2822 2922 [email protected] Darpan Thakkar +91 22 6164 0695 Anshul Gadia +91 80 4555 2754 [email protected] [email protected] John Chung +8862 6631 2868 [email protected] Summer Y Y Huang +852 2996 6976 North America & Latin America [email protected] James Steel +1 212 525 3117 Tingting Si +852 2996 6590 [email protected] [email protected] Yeon Lee +822 3706 8778 [email protected] Jonathan Brandt, CFA +1 212 525 4499 Dennis Yoo, CFA +852 2996 6917 [email protected] [email protected] Simon Fang +852 2914 9973 [email protected] Botir Sharipov, CFA +1 212 525 5150 Shishir Singh +852 2822 4292 [email protected] [email protected] Latin America Lily Yang, CFA 1 212 525 0990 Asia Kumar Manish +91 22 2268 1238 [email protected] Head of Resources & Energy Research, [email protected] Asia-Pacific CEEMEA Thomas C. Hilboldt, CFA +852 2822 2922 Alok P Deshpande +91 22 2268 1245 Dmytro Konovalov +7 495 258 3152 [email protected] [email protected] [email protected]

Jeff Yuan +852 3941 7010 Vivek Priyadarshi +91 22 3396 0694 Alternative Energy [email protected] [email protected] Sean McLoughlin +44 20 7991 3464 [email protected] Brian Cho +822 3706 8750 Eric Chen +8862 6631 2870 [email protected] [email protected] Evan Li +852 2996 6619 [email protected] Jigar Mistry, CFA +91 22 2268 1079 Chemicals [email protected] Charanjit Singh +91 80 3001 3776 CEEMEA [email protected] Kirtan Mehta, CFA +91 80 4555 2752 Yonah Weisz +972 3 710 1198 [email protected] [email protected] Simon Fang +852 2914 9973 [email protected] Rajesh V Lachhani +91 22 6164 0687 Sriharsha Pappu, CFA +971 4 423 6924 [email protected] [email protected] Specialist Sales James Lesser +44 20 7991 1382 Energy Nicholas Paton, CFA +971 4 423 6923 [email protected] [email protected] Europe Thomas White +44 20 7991 5996 Global Sector Head, Oil and Gas Asia [email protected] Gordon Gray +44 20 7991 6787 Dennis Yoo, CFA +852 2996 6917 [email protected] [email protected]

Kim Fustier +44 20 3359 2136 Latam [email protected] Eduardo Altamirano +1 212 525 8333 [email protected] Christoffer Gundersen +44 20 7992 1728 [email protected] Kevin R Gonzalez +1 212 525 4394 [email protected] CEEMEA Bülent Yurdagül +90 212 376 46 12 Lily Yang, CFA 1 212 525 0990 [email protected] [email protected]

Ildar Khaziev, CFA +7 495 645 4549 Utilities [email protected] Europe Adam Dickens +44 20 7991 6798 [email protected]

Verity Mitchell +44 20 7991 6840 [email protected]

Pablo Cuadrado +34 91 456 62 40 [email protected]

Charanjit Singh +91 80 3001 3776 [email protected]