The performance for the first half of 2024 was in line with expectations, and the company adjusted part of the stock and debt structure of associated companies. On August 14, Changjiang Infrastructure released its 2024 mid-year report. The company's profit for the first half of the year was HK$4.577 billion, up 1.46% year on year. Among them, infrastructure investment sales and interest income fell 22%, accounting for the associated company's profit of HK$1.351 billion, up 9% year on year, and should account for the joint venture's profit of HK$2.626 billion, up 28% year on year. The structural change in profit was mainly due to the company's conversion of shareholder loans from some joint ventures into shares, resulting in interest income from loans being converted into dividend income, which led to a drop of nearly 50%. Taken together, the company's total dividend and interest income for the first half of 2024 was HK$3.442 billion, a slight decrease from HK$3.562 billion in the same period last year. The main reason was differences in exchange rates and capital payment nodes. The company decided to pay an interim dividend of HK$0.72 per share, an increase of 1.4% over the previous year.

The UK sector showed strong performance in 2024H1, and Canadian sector profits declined significantly due to falling Canadian Power electricity prices. As of 2024H1, the profit of the UK sector was HK$1.865 billion, up 17% year on year. Excluding exchange rate factors, the increase in profitability in the UK sector, such as UK PowerNetwork, Northern Gas Networks, and Wales & West Gas Networks, was mainly due to lower financing costs for inflation-linked debt in these companies' debts against the backdrop of falling inflation. The Australian sector made a profit of HK$0.864 billion, up 5% year on year. Excluding exchange rates, it also increased 7%. The profit of the mainland European sector was HK$0.419 billion, down 1% year on year. Excluding exchange, it was basically flat. The Canadian sector's profit was HK$0.301 billion, down 25% year on year. The decline in profit in the Canadian sector was mainly due to the large year-on-year decline in electricity prices on the Canadian Power generation side. Profits in the New Zealand sector rose 11% year over year to HK$80 million, while the Hong Kong and China floor sector fell 6% year over year to HK$96 million. Electric energy also increased by 2% to HK$1.082 billion. Overall, the performance of the Changjiang Infrastructure Joint Ventures was in line with expectations. In terms of regulating business, Northumbrian Water, SA PowerNetworks, and Wellington Electricity will all determine new regulatory decisions.

The second listing has been completed, and the company's mergers and acquisitions continue to advance. By the end of August 2024, Changjiang Infrastructure and Partners had each acquired Phoenix Energy, the largest gas distribution network in Northern Ireland, at an undervaluation of HK$7.4 billion, with long-term construction accounting for 40%. UKPN, a subsidiary of the company, has acquired the 69MW solar power plant UU Solar. At the same time, the company also announced the acquisition of 32 wind farm assets in the UK, with an estimated investment amount of HK$3.5 billion. The pace of mergers and acquisitions of companies is accelerating. On August 19, the company completed its second listing on the London Stock Exchange in the UK and traded under the stock code “CKI”.

Profit forecast and investment advice: We expect the company's net profit for 2024-2026 to be HK$8.458/8.764/8.825 billion, respectively. Considering the extent of future interest rate cuts and the potential positive impact on the company's profits, we will discount future joint venture dividends and interest cash flows collected by the company based on the life of assets. The risk-free interest rate will be reduced from 4.2% to 3%, and the target price will be raised to HK$61.37, giving the company 19 times PE in 2024, maintaining a “superior to market” rating.

Risk warning: international geopolitical risk; risk of abnormal exchange rate fluctuations; infrastructure sector policy and regulatory risks in various countries and regions