Reiterate Buy on strong cash position well positioned for acquisitions
With a strong war chest of HK$46bn in cash or 17% of net assets, we believethis will greatly enhance CK Property’s ability to make more potentialacquisitions when land prices fall in HK and lead to better NAV/earningsgrowth ahead. Moreover, its solid balance sheet enables it to have much betterflexibility in acquisition timings, which will help in achieving above-industryaveragemargins, in our view. Although the share price has rallied 22% fromthe lows in late February, CK Property still trades at an attractive 33% discountto NAV, 13x PE and 0.7x PB, which we believe already priced in the 3-yearbearish outlook for the HK property market. Reiterate Buy.
FY15 underlying profit +29% YoY to HK$15,568mn; 6% above our estimate
CK Property’s FY15 revenue rose 133% YoY to HK$57,860mn, driven byinclusion of property businesses previously held by Hutch following thereorganisation. In particular, property sales revenue (including JVs) increased86% YoY, rental income surged 120% YoY and hotel/serviced suites revenuejumped 38%. Reported net profit was flat at HK$17,113mn due to much lowerdisposal gains and fair value gains. Excluding revaluation gains and one-offs,underlying profit was +29% YoY to HK$15,568mn, beating our estimate by 6%on better profit margins. A final dividend of HK$1.05/share was declared,bringing the full year dividend to HK$1.4/share on a 35% payout ratio.
Strong cash position enhances its ability to acquire NAV accretive projects
As of end-2015, CK Property‘s gross debt was HK$61bn (down fromHK$74.5bn as of mid-2015) and cash balance was HK$45.9bn (mostly flat fromHK$46.1bn as of mid-2015). The cash balance was equivalent to 17%(unchanged from mid-2015) of its net assets and 6% (down from 11% as ofmid-2015) of net gearing. In our view, this strong cash position should enableCKP to well stand out from peers and greatly enhance its ability to make NAVaccretiveacquisitions when land prices in Hong Kong fall. Consequently, thesepotential acquisitions should lead to better NAV and earnings growth ahead.
Target price at 25% discount to our revised NAV estimate of HK$71.4/share
Our new target price is based on a 25% discount to our revised NAV estimateof HK$71.4/share, which implies 15x 2016 PE. Our target discount is below thehistorical NAV discount of the former CK Holdings and in line with otherindustry leaders such as SHKP (also at 25%), which we believe is appropriate.Risks: government policy, sales momentum and interest rate trend.