Source of opportunity
We think management’s sizable HK$632mn maiden share buyback in lateMarch, at c.HK$47/share, could indicate the beginning of more active capitalmanagement by Cheung Kong Property Holdings (CKP), thereby potentiallylending support to its share price. With low leverage (5.7% net gearing end-2015) amid continued strong cash flow from property sales and recurringincome, we believe CKP’s balance sheet would be strong enough to supportpotential accretive M&A and capital management initiatives, including sharebuybacks or a higher dividend payout. CKP stands at a 47.0% discount toour FY16E NAV of HK$93.24, vs the wider sector’s average of 46.8%.
Catalyst
(1) On the back of a full-year contribution from ex-Hutchison Group assets,in addition to positive rental reversions at its core office portfolio, we lookfor higher recurring income in 2016E of HK$2.09/share, up 39.3% yoy from2015’s HK$1.50 (vs. 2015 DPS of HK$1.40). (2) After a near-record high ofHK$56bn in 2015 contracted sales, we look for CKP to maintain its solidasset turnover pace with contracted sales of c. HK$43bn, of which weestimate HK$19bn/HK$22bn/HK$2bn will come from, respectively, HK/China/the UK, helping CKP turn net cash positive by end-2016. (3) Higher debtheadroom at its 28%-owned Fortune REIT (c. HK$10bn from Jan-16 onward)may provide CKP with more flexibility when considering asset injections.
Valuation
We raise our FY16E-18E EPS by up to 2.4% on the share buyback and finetunedprice/rent assumptions, maintaining our 12m NAV-based TP ofHK$70, at a 25% discount to our FY16E NAV of HK$93.24. As of the April 1close of HK$49.40, CKP trades at a 47.0% discount to the aforementionedNAV, 12.2X 2016E PER with a 2.8% dividend yield. Reiterate Buy.
Key risks
Worse-than-expected conditions for asset monetization and/or M&A.