20180205-高盛-长实集团-01113.HK-Down_to_Neutral_post_outperformance__likely_to_focus_more_on_acquisitions_than_disposals_in_near_term_9页_445kb

CK Asset Holdings Ltd (1113.HK) Summary

Core Content

CK Asset Holdings Ltd (1113.HK) is a property investment trust (REIT) that has experienced significant share price growth, leading Goldman Sachs to downgrade its rating from Buy to Neutral. The company's strong capital management strategy, including share buybacks and dividend hikes, has contributed to its outperformance compared to the broader market indices. However, the downgrade is due to the stock now trading at a 30% discount to FY18E NAV, which is less attractive than the sector average and key peer SHKP's 40% discount.

Main Points

• Share Price Performance:

  • 12-month price increase of 46% (as of Feb 2, 2018), outperforming the FTSE EPRA/NAREIT HK (+31%) and MSCI HK (+29%).
  • Since being added to the Buy List on July 16, 2015, the stock has gained 12%, while the indices gained 31% and 21%, respectively.
  • Since being added to the Conviction List on May 4, 2016, the stock has gained 49%, outperforming the indices by 18% and 10%, respectively.

• Rating Change:

  • Downgraded to Neutral due to share price outperformance, which has reduced the upside potential relative to peers.
  • Removed from the regional Conviction List.

• Capital Management:

  • Strong commitment to capital management, with c.HK$9bn in share buybacks since 2016.
  • Fast dividend growth: +9.3% in 2016 and +10.5% in 1H17.

• M&A Strategy:

  • The company is expected to focus more on acquisitions than disposals in the near term.
  • The Center disposal could add ~5% to FY18E NAV and ~55% to FY18E underlying net profit.
  • The company has already monetized ~HK$93bn of Hong Kong assets in 2017.

• Valuation Metrics:

  • 12m Price Target: HK$80.50 (up from HK$79.10).
  • P/E (X): 9.9 (12/16), rising to 13.5 (12/17E), then decreasing to 11.9 (12/18E) and 10.8 (12/19E).
  • P/B (X): 0.7 (12/16), increasing to 1.0 (12/17E), and remaining stable at 0.9 (12/18E) and 0.9 (12/19E).
  • FCF yield (%): 13.3 (12/16), rising to 24.4 (12/17E), then dropping to -0.5% (12/18E), and increasing to 11.3 (12/19E).
  • NAV: HK$107.33 (FY18E), with a 25% discount to the target price of HK$80.50.

Key Financial Data

• Market Cap: HK$282.3bn / $36.1bn
• Enterprise Value: HK$288.8bn / $36.9bn
• 3m ADTV: HK$357.1mn / $45.7mn
• Net Debt to Equity: 0.8% (as of 1H17)
• Cash Reserves: ~HK$66bn as of 1H17
• Total Assets: HK$396,836.0 (12/16), rising to HK$413,981.7 (12/17E), and decreasing to HK$404,595.1 (12/19E)
• NAV Accretion: ~4.9% after The Center disposal

Key Risks

• Downside:
  • Worse-than-expected asset monetization or M&A outcomes.
  • Abrupt economic downturn.
  • Interest rate hikes.
• Upside:
  • Accretive M&A that could drive growth in recurring income.

Investment Strategy

• GS SUSTAIN: A global investment strategy focused on identifying high-quality industry leaders with sustainable competitive advantages and effective ESG risk management.
• M&A Rank: CKA is ranked 3 (low probability of being an acquisition target), which means it is not considered material for M&A-related price targets.

Analyst Information

• Analysts: Justin Kwok, CFA and Colin Yao
• Contact:
  • Justin Kwok: +852-2978-0481 | justin.kwok@gs.com
  • Colin Yao: +65-6654-5426 | colin.yao@gs.com
• Disclosure: Goldman Sachs has a potential conflict of interest due to its investment banking relationships with the company.

Rating Distribution

• Global:
  • Buy: 33%
  • Hold: 54%
  • Sell: 13%

Summary of Financial Performance

Metric	12/16	12/17E	12/18E	12/19E
Revenue (HK$ mn)	69,300.0	75,681.7	65,071.6	68,026.2
EBITDA (HK$ mn)	26,826.0	28,003.6	30,206.3	32,323.8
EPS (HK$)	5.05	5.44	6.15	6.76
DPS (HK$)	1.53	1.70	1.83	1.96
FCF yield (%)	13.3	24.4	-0.5	11.3

Key Risks and Opportunities

• Opportunities:
  • Continued focus on acquisitions to drive recurring income and future dividend growth.
• Risks:
  • Potential for lower-than-expected asset monetization or M&A outcomes.
  • Economic downturn or interest rate hikes could negatively impact performance.

Conclusion

CK Asset Holdings Ltd has shown strong performance in the past, driven by strategic capital management and asset monetization. However, due to its recent outperformance and current valuation, the stock has been downgraded to Neutral. The company is expected to focus more on acquisitions in the near term, and its NAV is currently 30% below the price target, suggesting potential for future growth. The company's financial health remains strong, with a low net debt-to-equity ratio and significant cash reserves, supporting its capital management strategy.