First set of results since listing by way of introduction.Cheung Kong Property’s 1H15 underlying earnings came in at HK$5.5bn. Interim DPS was HK$0.35. Note that the interim report card included the results of the property portfolio held by Cheung Kong Group for the full six months and results of the property portfolio previously held by Hutchison Group between 3 Jun and 30 Jun. The company booked development earnings of HK$3.82bn, including HK$1.1bn from China projects. Development margins were narrower at 24% from 1H14’s 37% partly due to the profit recognition for Hemera, a JV with MTRC, which carries lower margins. Other key Hong Kong projects recognised included City Point, Mont Vert and DIVA. The divestment of Chongqing Metropolitan Plaza produced decent disposal gains of HK$1.4bn to Cheung Kong Property. Despite the loss of income from the disposal of this retail mall, rental income, excluding contributions from portfolio previously held by Hutchison Group, were largely stable.
Well poised for accretive acquisitions.In 1H15, Cheung Kong Property generated HK$21bn and HK$9bn from property sales in Hong Kong and China respectively. As of end-Jun-15, attributable contracted sales that were not recognised yet reached HK$33bn, of which >50% is expected to be booked in 2H15. After selling Stars by the Harbour, Cheung Kong Property plans to launch its Yuen Long project, followed by The Zumurud in Ho Man Tin. Elsewhere, Cheung Kong Property should derive c.HK$9bn p.a.of recurrent earnings from its expanded rental and hotel portfolio, and REIT investment. With the above, earnings risk is low in the medium term. As of end-Jun-15, Cheung Kong Property had net debt of HK$28.4bn, representing a gearing ratio of 11%; gearing ratio would improve further if we take into account sales receivables. Armed with a strong balance sheet, Cheung Kong Property is well placed to pursue accretive acquisitions to replenish its declining land bank in Hong Kong with a disciplined approach when opportunity knocks.
BUY with lower TP of HK$75.2.The stock is trading at a 45% discount to our assessed current NAV; the low valuation is unjustified given its solid balance sheet and sound earnings quality. We re-iterate our BUY rating with HK$75.2 TP, derived by applying a 25% discount to our Jun 2016 NAV estimate.