Signs of confidence from CKH’s CEO
We see the CEO’s recent share purchase as further signs of managementconfidence in the prospect of the business and in its valuation. HistoricallyHWL’s share price (the predecessor prior to CKH) has outperformed thebroader market by 27% on average in the 12 months post the CEO purchase.DB’s quantitative team has also done similar work at a larger scale (Getting theinsiders’ track, 6 January). Their analysis of insider trading (i.e. seniorexecutives, directors) for Pan Asian stocks found 11% outperformance in the12 months post insider share purchases. From a fundamental perspective,CKH’s valuation remains attractive and with the deal in Italy likely to be highlyaccretive, we re-iterate our BUY rating.
Historically the CEO has picked stock purchase timing well
CKH’s CEO on 12 August purchased 1m CKH shares at an average price ofHKD95.37/share. Historically, the CEO has made major purchases in 2004-2005 and in 2009-10. As shown in the table below, the stock has outperformedthe HSI by 27% on average over a 12 month period post these purchases.Interestingly between 2006 and 2008 (when no purchase was made), the stockunderperformed the HSI by 17% on average over the next 12 months.
Fundamentals supportive
The stock is currently trading at a 25% discount to NAV (vs a LR average of21%). The merger in Italy which is currently not in DB forecast could drive upvaluation up by a further 5-10%. Operationally the business is also executingwell despite the macro headwinds and with oil prices having bounced off itslows, this should remove one major earnings drag over the next 12 months.Retain BUY.