Morningstar has raised its fair value estimate for CKI HOLDINGS (01038) by 3% to HK$65, citing modest earnings growth expectations. The stock is currently undervalued, trading at a forward P/E of 15x with a dividend yield of 4.8%, supported by stable medium-term prospects.

The research firm projects a 6.3% compound annual growth rate (CAGR) in earnings per share (EPS) over the next five years, driven by higher regulated returns reflecting the significant rise in capital costs since the last regulatory reset. Allowed returns, typically adjusted every five years, are benchmarked above government bond yields, which have surged post-pandemic.

Morningstar forecasts a 3% CAGR in dividends per share (DPS) over the same period, anticipating that management will moderate dividend growth to reduce the payout ratio below 70%. Given improving prospects for regulated utilities and higher returns, the firm has raised its medium-term EPS estimates by an average of 2.4%.