CLP Holdings is a utility company supplying electricity to Kowloon and the New Territories. It is also one of the biggest utilities in the region. Recently, Merrill Lynch said in a report that it remained underweight on utilities in Hong Kong but believed CLP's downside potential was limited. Merrill said CLP had been trading at the lower end of its range of $34 to $41.90 since early in the year and had underperformed the Hang Seng Index by 23 per cent. It maintained an accumulate recommendation for the intermediate term with a 12-month price target of $42.70 to $33.70. In August, CLP ended its 31-month relationship with Citic after an offer to sell 15 per cent of CLP shares at $34.80 per share to the utility company. As a result, Merrill Lynch has revised its earnings per share forecasts upwards by 6.4 per cent for 2000 and 6.1 per cent for 2001. The securities house said CLP was adopting a more appropriate capital structure and it had upgraded the return on equity forecast from 17.9 per cent to 21.3 per cent in 2000. Merrill Lynch said CLP was trading at a 1.3 per cent premium over its net present value estimate of $36.20 per share. The brokerage said its usual 9 per cent discount was justifiable given the low risk of CLP's core business and diversification into other power businesses beyond Hong Kong. There was the potential of entering the telecommunications business.