News
FTSE has announced the results of its quarterly review for the FTSEEPRA/NAREIT Global Real Estate Index on September 3, 2015 – CheungKong Property (CKP) will be added to its Global Developed Index. Allchanges are effective as of September 21, 2015.
Analysis
While CKP was included in some major indices such as the MSCI and HangSeng Index soon after its listing on June 3, it has not yet been included inthe FTSE EPRA/NAREIT Index. Thus, in our initiation report (dated July 17,2015), we highlighted the potential index inclusion by the latter as one ofthe key catalysts to watch out for CKP. We also believe the confirmation forits addition to the Developed Index, instead of the Emerging Markets Index,would remove uncertainties among some investors amid CKP’s exposurein China markets.
Implications
We believe the FTSE EPRA/NAREIT Global Developed Index is a widelyfollowed index by real estate focused investors, and such index inclusionmay bring a new flow of funds to CKP. Looking ahead for CKP,fundamentally we see: (1) strong launch pipeline in HK with Stars by theHarbour (attr. 321 units in Hung Hom), Yuccie Square (1,129 units in YuenLong), and The Zumurud (182 units in Homantin) as likely key contributorsover the next six months in HK. (2) High visibility in its earnings amidc.HK$17bn contracted sales across HK and China already secured forbookings in 2H2015E. (3) At only 11.0% gearing as of June 2015, we seeample capacity for M&A.
Maintain Buy and 12-month NAV-based target price of HK$81. As ofSeptember 3 close of HK$53.05, CKP is trading at a 48% discount toHK$101 FY15E NAV, and 0.79X to HK$67 BVPS. Risks: Worse-thanexpectedmarket conditions for asset monetization or M&A.
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