Initiate BUY with TP of HKD74. We expect the spin-off ofHong Kong Electric (HKE) to be positive as Power Assets’ (PA)earnings from potential overseas acquisitions could offset theloss of earnings due to a reduced stake in HKE.
With a large war-chest and access to low cost Euro and debtfinancing, we expect PA’s overseas expansion could beimminent. We view potential acquisitions as positive sharecatalysts in the near term.
Following the spin-off, PA will become more geographicallydiversified, in our view. We forecast the earningscontribution from HK will drop from 44% to 29%.