CICC: Long-term funds still have a high-yield allocation demand, and the utility sector suggests focusing on three main themes.

CICC released a research report stating that as we enter 2026, the market is focusing on growth style and thematic investment opportunities are emerging. The market's attention to the utilities sector has weakened under the style shift and fundamental weakness, continuing the trend seen in the second half of 2025. However, CICC believes that there is still a high demand for high-dividend investments from long-term funds, and there are trading opportunities for regional individual stocks. Key points from CICC: Theme 1: Profit and cash flow in the industry gradually improving. 1) The operating transformation of the waste incineration industry has been effective, with companies focusing on upgrading existing assets to improve efficiency, driving stability and improvement in fundamentals and industry landscape by benchmarking core operational data. In addition, with a decrease in capital expenditures and improving receivables trends, industry free cash flow is improving, boosting dividend capabilities and willingness. Companies are actively exploring new scenarios such as direct connection to green electricity to match stable electricity demand, and cautiously seeking opportunities for overseas expansion to expand growth space. 2) Nuclear power: With the release of South China nuclear power price risks being more sufficient, the bank expects profits of nuclear assets in the region to stabilize. With the start of the "14th Five-Year Plan", nuclear power will enter a period of intensive production, contributing stable annual profits. Theme 2: High demand for high dividend investments, focusing on power generation with strong payment ability and Hong Kong utilities. With overseas interest rate cuts and a low interest rate environment domestically ongoing, long-term funds still have a high demand for high dividend investments. The bank believes that compared to the hydroelectric sector favored by the market in the past, power generation and waste incineration with slowing capital expenditures and abundant cash flow have the potential to increase dividend payouts and become new high dividend options. In addition, Hong Kong utilities have high predictability of profits and a high certainty of historical dividends. Theme 3: Growth direction under the new energy system. The continuous transformation of the new energy system in the power industry, the "14th Five-Year Plan" focuses on the consumption and application of green electricity, and accelerating the construction of the power grid, promoting high-quality industry development. The bank believes that with the decrease in investment in the power generation side, the implementation of consumption responsibility on the demand side, and the rapid development of grid construction and adjustable power sources, the combination of multiple measures will help the green electricity industry emerge from its fundamental low. The current sector valuation is at the bottom, and long-term configuration risks are relatively controllable. The bank recommends focusing on: 1) Opportunities for improvement in cash flow operations of green electricity under accelerated subsidies: recommending leading companies with high wind power shares and outstanding trading and operation capabilities; 2) Accelerated introduction of supportive policies in various regions to support the development of adjustable power sources: pumped storage energy, electrochemical energy storage. Risk: Electricity demand not meeting expectations; Management effectiveness of electricity enterprise market value not meeting expectations.