News
According to HKET (Aug 23, 2016), there is market conjecture about ICBC(1398.HK, Buy; Aug 22 close:Rmb4.47; covered by Nan Li) being one of thepotential bidders for one of CKP's key HK Central office projects, TheCenter, at an offer price of HK$34.8bn.
Analysis
We think the potential offer of HK$34.8bn would imply roughly an ASP ofHK$28,600 per sq ft based on 1.2mn sq ft GFA attr. to CKP (they own c.75%of entire building), or an implied cap rate of c.2.5% by annualizing its 1H16rental profit of HK$435mn. Our FY16E NAV for this building stands atHK$17.4bn (or 4.5% of total NAV) and the company's independentvaluation disclosed during Feb 2015’s restructuring exercise at HK$17.7bn.
Implications
According to the HKET article, there is no confirmation of this news by eitherCKP or ICBC. However, during their interim results briefing on Aug 11, 2016,CKP's management guided that they would continue to evaluateopportunities to monetize their assets, with the exception of only twoflagship Central office projects — Cheung Kong Center and Hutchison House.
Although we do not take a view on the likelihood of this event, if the disposalwere to materialize, we think it would be in line with CKP's overall strategy tokeep a fast pace of asset turn and crystalize value when opportunities arise.
At only 2.5% net debt position with c.HK$50bn cash as of 1H16, we notethat CKP has resources for active capital management, including higherdividend and share buyback. Looking ahead, we think CKP’s focus wouldcontinue to be on its capability to re-deploy capital into accretive projectsand to grow recurring income.
If CKP were to dispose The Center at HK$34.8bn, we see c. 4.8% accretionto our overall FY16E NAV. Our 12-month TP is of HK$72.0 (unchanged) setat a 25% discount to FY16E NAV. Maintain CL-Buy. Risks: Worse-thanexpectedconditions for asset monetization and/or M&A.