Citigroup's research report pointed out that nearly half of the 48 mainland and Hong Kong companies in the utilities, new energy, and power grid sectors, which announced their performance for the first half of the year in August, did not surprise with their performance being lower than expected, given the weak domestic economy. For the second half of the year, the bank recommends focusing on stocks with high dividend yields, clear profit prospects that are not dependent on the macro economy, and stocks with potential catalysts and a high contribution from exports. In these sectors, the bank's top picks include Run Run (01193.HK), China Communications Construction (01038.HK), Goldwind Science & Technology (02208.HK), and Run Power (00836.HK), among others.

Citigroup has a target price of HKD 32.5 for Run Run, HKD 63 for China Communications Construction, HKD 5.35 for Goldwind Science & Technology, and HKD 27 for Run Power. The bank has a "buy" rating on each stock, mainly based on the bright profit prospects, strong cash flow, and sustainable profit margins without excessive competition.

With the yield on the US 10-year Treasury bonds at 3.9%, Citigroup believes that stocks with a predicted yield of over 5% and high profit visibility are attractive. These stocks include Beijing Enterprises Water Group (00371.HK), EB Environment (00257.HK), HK Electric - SS (02638.HK), and Power Assets (00006.HK), all of which have positive free cash flow. On the other hand, stocks with high yields but negative free cash flow include China Power (02380.HK), New World (00956.HK), Run Power, and TG Smart Energy (01083.HK).

In addition, with the potential start of an interest rate cut cycle in the US in September, Citigroup expects this to benefit Hong Kong utilities stocks, as their stock prices historically have a high correlation with US Treasury yields. Among them, China Communications Construction and Power Assets have room for mergers and acquisitions. Run Power may acquire the Huizhou nuclear power assets from its parent company in the second half of the year.

However, Citigroup adds that some utilities stocks face negative catalysts. Guangdong Investment (00270.HK) may increase property devaluation in the second half of the year, reflecting the decline in the property market. Beijing Enterprises Holdings (00392.HK) may struggle to obtain significant subsidies from the Beijing municipal government to turn the losses of the Nanshan LNG receiving station into profits in the second half of the year. Furthermore, Longyuan Power (00916.HK) may incur asset impairment losses due to the replacement of small wind turbines in the fourth quarter.