What surprised us
CKP reported FY15 underlying profit of HK$15.6bn, which includes theproperty portfolio previously held by the Cheung Kong Group for a full 12months and that by the Hutchison Group for 7 months since the June 3listing. While our model is based on full 12M pro forma contributions fromboth portfolios, if we were to adjust as above, we think results would be inline. Full-year DPS of HK$1.40 was slightly below GSe/Bloombergconsensus of HK$1.53/HK$1.50, respectively, implying a c.35% payoutratio, and 2.9% yield to last close. BVPS was HK$68.17, up 1.8% from 1H15.In 2015, CKP had fast asset turnover with HK$56bn contracted sales(HK$30bn in HK, the rest in China/overseas), but only added one site in HK;management stressed its approach to land acquisition is highly disciplinedand patient. On rental, its Central district offices saw robust demandgrowth and kept c.99% occupancy; its retail portfolio should remainpositive despite headwinds, with overall attributable rental EBIT reachingHK$4.5bn. Hotels were weak amid lower arrivals to HK, but servicedapartment contributions remain stable amid AEIs and steady demand.
What to do with the stock
We see high earnings visibility, with HK$23bn contracted sales alreadysecured for bookings: HK$16bn in HK, HK$7bn in China/overseas. Tooptimize capital utilization (at only 5.6% net gearing) and maximizereturns, management seeks new investments to leverage its real estateexpertise and generate stable income, citing as an example its recentfailed bid for London City Airport – together with CKI (Neutral; HK$66.00).We revise our FY16E-18E EPS by up to 2%, and maintain our 12m NAVbasedTP of HK$70, at a 25% discount to HK$92.93 FY16E NAV. Key risks:Worse-than-expected conditions for asset monetization and/or M&A.