In-line FY15 results showed strong contracted sales and astrengthening balance sheet
Building a war chest for potential land acquisitions as well asother opportunities that would diversify revenue sources
Maintain Buy with a target price of HKD78 (from HKD83)
In-line maiden full-year results. Cheung Kong Property (CKP) reported FY15underlying earnings (excluding revaluation gains) of HK15,568m with a full-year DPS ofHKD1.40, implying 35% payout. In our view, FY15 results showed CKP’s strongresidential sales track record and a strengthening balance sheet, both of which shouldwell-position CKP amid macro uncertainties. With the stock trading at 54% NAVdiscount, we see a favourable risk-reward profile in CKP stock. Further, we expect fullyearcontributions from Hutch property assets in FY16 to drive 20% earnings growth.
Strong sales track record proven again in 2015. CKP achieved strong contractedsales of HKD56bn in FY15, consisting of HKD29.5bn from HK, the highest sales amongHK developers in 2015, thanks to successful launches including The Beaumount II(100% of total units sold), La Lumiere (99% sold), VIVA (81% sold) and Yuccie Square(71% sold), all of which will contribute to 2016 earnings. CKP also achieved FY15contracted sales of HKD25bn in China (vs HKD16bn/23bn of contracted sales inChina/HK reported by Cheung Kong Group in FY14).
Building a war chest for potential acquisitions of land and other opportunities.CKP’s net gearing improved 5.3pp h-o-h to 5.7% as of end-2015, reflecting lower netdebt of HKD15.1bn as of end-2015 (vs HKD28.4bn as of June 2015). Book NAV rose+2% h-o-h to HKD68.2 as of end-2015.The strengthening balance sheet equips CKPwell with financial flexibility for investment opportunities. In addition to land acquisitions,CKP also highlighted a business strategy of exploring other revenue sources, e.g. jointprojects with Cheung Kong Infrastructure leveraging on CKP’’s property expertise, forlong-term sustainable growth and balancing the cyclicality of cash flow fromdevelopment properties.
Maintain Buy rating with a revised target price of HKD78 (from HKD83). We revise ourFY16-17e earnings down by 9-10% reflecting slower residential sales in HK and lower hotelearnings. Our revised target price is based on our NAV estimate of HKD104 (unchangedwith lower China assets value offset by lower net debt) and a wider target discount of 25%or 0.25 SD below HK developers’ historical average discount (from 20% or HK developers’historical average discount). We widen our target discount to reflect potentially slower assetturn in HK after strong residential sales in 2015, coupled with few land purchases so far.Meanwhile, we still expect CKP’s China development properties (28% of GAV) to benefitfrom the improved sentiment in the China property market since 2H15 (a potential stockcatalyst). Key downside risks include macro uncertainties/property regulation in HK/China.