Asian Utility Strategy
Fuel Cost Pass-through to Drive Outperformance
 Tariff hikes not enough to offset rising fuel costs — We expect 2008E OP and NP
margins of Asian utilities to contract 2ppts yoy to 18.8% and 3ppts yoy to 15.5%
due to rising fuel costs but limited tariff hikes amid high inflation. Companies that
can pass on higher fuel costs will outperform, in our view. Our top picks in the
Asian utilities sector for 2H08 are CKI, Xinao, Glow, NTPC and GAIL.
 Hong Kong — We add CKI to our top buys for its defensive earnings, low P/E vs.
peers and sub-10% gearing that provides scope for EPS-accretive M&A.
 China — Resilient gas sales margins and a high net profit CAGR of 26% in 2008E-
10E make Xinao attractive. The impact of the property market slowdown in China
appears limited. We remove China IPPs Huaneng and CRP from our top buys list,
believing that their stock prices have already priced in possible tariff hikes.
 Thailand — We like Glow. Its capacity will jump nearly 50% in 2008-12E and
demand from its petrochem customers remains strong. The recent environmental
approval for its 660MW coal-fired IPP won last year has lifted an overhang.
 India — We add defensive plays NTPC and GAIL to our top picks list. These stocks
have respectively declined 32% and 28% over the past six months.
 Top Sells — Huaneng and Huadian are on our top sells list for valuation reasons.
In the power-equipment sector we prefer Harbin Power to Shanghai Electric,
which is more expensive and exposed to A-share investment risks.

[此贴子已经被作者于2008-6-12 14:34:26编辑过]