News
According to HKEx disclosure, Cheung Kong Property (CKP) conducted itsmaiden share buyback on March 18th, right after its results blackout.
Analysis
Company spent HK$536mn to acquire 11.5mn shares on the exchange
with an average price of c.HK$46.52/share on March 18th, which accountedfor 0.2986% of total shares outstanding. As a reference, since its listing onJun 3rd, 2015, the Li family, its major shareholder, had increased its stake inCKP twice back in early June 2015, and spent c.HK$87mn for 1.3mn shares,or c.HK$67.06/share.
Implications
This is the first ever share buyback conducted by the Cheung Kong group,not only for CKP but also its predecessor, Cheung Kong Holdings. Inprevious decades, we only saw Cheung Kong’s major shareholders raisingtheir stakes, but not through the company’s share buyback activity.
At the results analyst briefing on March 17th, CKP’s management guidedthat they are open to initiatives in capital management, as long as suchinitiatives could enhance shareholders’ value. We view the share buybackof over half a billion HK dollars right after the results black-out as anattempt by the management to signal that the current share price isattractive and is in line with the above guidance.
In our view, this buyback could be the beginning of a more active capitalmanagement by the company. With leverage (net debt/equity) of 5.7% as ofDec 2015 and continued strong cash flows, CKP has a strong balance sheetto support both potential land acquisitions and capital managementinitiatives, including potential share buyback or higher dividend payout.
We reiterate our Buy rating on CKP with a 12-month NAV-based targetprice of HK$70.00, set at 25% discount to HK$92.93 FY16E NAV. Risks:Worse-than-expected conditions for asset monetization and/or M&A.
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Coverage View: Attractive