Reiterating Buy on strong financial position/flexibility to make new acquisitions
In our view, CKP’s strong financial position (9% net gearing and cash balanceof HK$46bn) enables it to be flexible in timing the market and consequentlyleads to consistent above-industry-average profitability. While CKP’s currentlandbank in HK is relatively small, we have little doubt on management’sjudgment on timing, and we do not see a risk of an earnings gap ahead. Moreimportantly, we believe timing for acquisitions may emerge soon in light ofrecent market volatilities. Meanwhile, we expect the likely index inclusion intothe FTSE EPRA/NAREIT to be a key near-term catalyst. Reiterating Buy.
1H15 underlying profit +9% YoY to HK$5,536mn; in-line with expectation
CK Property reported 1H15 revenue +51% YoY to HK$17,740mn, driven by asurge in property sales. Meanwhile, rental revenue rose 46% YoY toHK$1,379mn, boosted by inclusion of the property portfolio previously held byHutch. Net profit was up by 22% YoY to HK$6,890mn in 1H15 on the back of aHK$1,366mn disposal gain from Chongqing Metropolitan Plaza and revaluationgains of HK$1,299mn. Excluding revaluation gains, underlying profit was up9% YoY to HK$5,536mn. An interim dividend of HK$0.35/shr was declared.
Key beneficiary of a strong primary market; primary’s dominance to continue
According to Centaline, CK Property was ranked second in the sales leaguetable in Hong Kong, with total sales of HK$11.2bn in 1H15, marginally behindSHKP’s HK$11.4bn. In 1H15, primary volume hit a 10-year high by making up25% of total transactions. We expect the share of the primary market to groweven further as developers’ competiveness over the secondary marketincreases with the ability to provide flexible payment options. We expect CKProperty to be a key beneficiary of a strong primary market with the secondlargest launch pipeline among HK developers.
Target price at 25% discount to our revised NAV estimate of HK$100/share
Our target price is based on a 25% discount (formerly 15%) to our NAVestimate of HK$100/share (HK$103.5/share). Our revised target discount isbelow the historical NAV discount of the former CK Holdings, which webelieve is appropriate in light of the market uncertainties and volatilities. As across check, our target price implies a 2015 PER of 20x, which we believe isreasonable given the higher contribution from investment properties/recurringincome. Risks: government policy, sales momentum, and interest rate trend.