Citibank: Lowering Changjiang Infrastructure Group's (01038) Target Price to HK$70 Management Guidelines Special Dividend Expectations to Cool Down

The Zhitong Finance App learned that Citi released a research report saying that Changjiang Infrastructure Group (01038)'s profit in the first half of the year benefited from sales proceeds and showed strong performance, but management's guidelines on paying special dividends at the performance meeting were more conservative than market expectations, causing the bank to lower its target price. Taking into account factors such as return resets and exchange rate adjustments, Citi adjusted Yangtze River Infrastructure's 2026-2028 profit forecast by 4% to 8%, and raised the weighted average cost of capital due to the weakening of the special dividend catalyst. The target price was lowered by 5% to HK$70 from HK$73.5, maintaining a “buy” rating, and optimistic about the upward space brought about by potential mergers and acquisitions.

According to the report, the net profit of Changjiang Infrastructure surged 389% year-on-year to HK$21.252 billion in the first half of the year, including sales proceeds totaling HK$15.271 billion from the sale of assets such as UKPN and UK Rails. Excluding related projects and UKPN's core profit contribution, core profit from existing assets increased 15% year over year to HK$3,291 billion, mainly due to increased return on regulated utility assets in the UK and Australia, as well as increased interest income from the sale of capital.

Citibank said that as of the end of the first half of the year, Changjiang Infrastructure held about HK$33.9 billion in net cash, equivalent to HK$13.45 per share. Management indicated at the results meeting that they prefer to use cash for mergers and acquisitions rather than paying special dividends due to concerns that the size of the company's share capital will be drastically reduced after the special dividend is paid. Referring to the spin-off of Hong Kong Electric Power Industries (00006) in 2015, it did not begin to pay special dividends until 2017 to 2018. Citi expects Yangtze River Infrastructure to take 2 to 3 years to find mergers and acquisitions opportunities. The special dividend may not be realized until 2028 to 2029 at the earliest.

In terms of acquisitions, Changjiang Infrastructure was reported as a leading candidate to bid for British Thames Water last year, but the company recently favors debt restructuring with existing creditors, and Citi believes it is unlikely that a deal will be reached in the short term. In addition, it is reported that Changjiang Infrastructure plans to sell EDL Energy for 2 billion to 3 billion Australian dollars. If the transaction is implemented, the bank is estimated to record sales revenue of about 500 million to 1 billion Australian dollars.