Cheung Kong Holdings (0001.HK) Summary
Core Content
Cheung Kong Holdings (CK) is a diversified conglomerate with a strong investment thesis, particularly in the context of housing market dynamics in Hong Kong. The report highlights that CK's performance and valuation have been positively influenced by its diversified business portfolio, including Hutchison Whampoa (Hutch), utility projects, and PRC property developments. The analysis suggests that CK is well-positioned to benefit from the expected increase in project approvals and the pent-up demand in the mass-market segment.
Main Points
- Price Target Adjustment: After Hutch's strong 1H13 results, the 12-month price target for CK was raised from HK$102 to HK$110.4. This adjustment was incorporated into CK's forecasts, leading to a revised 12-month target price of HK$143.8, based on a 25% discount to NAV.
- Earnings Forecast: The 2013-15E EPS was raised by 0-2%, and the 2013E NAV was updated to HK$191.7 (from HK$184). This reflects the potential for CK to benefit from increased project approvals and the shift in demand to mass-market properties.
- Market Position: CK has a relatively small market share in HK residential sales (5% ytd), with only 237 units sold. However, its diversified business model provides a buffer against housing price declines, especially in the Hong Kong market.
- Valuation Metrics:
- CK's stub (excluding Hutch) is currently trading at a 69% discount to NAV and 0.45x P/B, significantly lower than historical averages of 40% and 0.84x.
- A 10% change in the HK housing price assumption could reduce the NAV by approximately HK$6.2, or 7% of the base-case stub NAV.
- Financial Performance:
- EBITDA and core profit are expected to grow significantly in 2013 and 2014, with EBITDA growth at 32.1% and core profit growth at 3.3% for 2013E.
- The dividend yield is projected to increase from 3.0% to 3.8% by 2015E, reflecting a higher payout ratio.
- Sensitivity Analysis:
- A 20%-40% reduction in sales volume would only decrease CK's 2013/14E earnings by 1%-6%, indicating strong resilience in earnings.
- The report forecasts HK$15bn and HK$21bn in contracted sales for 2013 and 2014, respectively.
- Investment Rating: The report maintains a Buy rating on the Conviction List, highlighting the company's potential for upside despite current market challenges.
Key Risks
- Further delay in project approvals: This could negatively impact CK's ability to monetize its NAV and capture demand.
- Drastic housing price decline: This could affect the value of CK's property holdings and reduce earnings.
Investment Profile
| Key Data |
Current |
12/13E |
12/14E |
12/15E |
| Price (HK$) |
111.00 |
- |
- |
- |
| 12 Month Price Target (HK$) |
143.80 |
- |
- |
- |
| Market Cap (HK$ mn / US$ mn) |
257,094.2 / 33,146.3 |
- |
- |
- |
| Foreign Ownership (%) |
-- |
- |
- |
- |
| EPS (HK$) New |
13.88 |
14.34 |
14.81 |
15.11 |
| EPS Revision (%) |
0.0 |
0.0 |
2.0 |
2.3 |
| EPS Growth (%) |
(30.2) |
3.3 |
3.3 |
2.0 |
| P/E (X) |
7.6 |
7.7 |
7.5 |
7.3 |
| P/B (X) |
0.7 |
0.7 |
0.7 |
0.6 |
| EV/EBITDA (X) |
33.4 |
26.4 |
21.5 |
31.6 |
| Dividend Yield (%) |
3.0 |
3.1 |
3.4 |
3.8 |
| ROE (%) |
10.0 |
9.6 |
9.2 |
8.8 |
| CROCI (%) |
9.1 |
10.7 |
11.6 |
11.2 |
Analyst Contributors
- Simon Cheung, CFA
- Frank He
- Janet Lu
- Alex Ye
Key Financials
| Profit Model (HK$ mn) |
12/12 |
12/13E |
12/14E |
12/15E |
| Total Revenue |
31,106.0 |
41,443.4 |
53,626.4 |
46,088.8 |
| Cost of Goods Sold |
(10,747.8) |
(14,319.6) |
(18,529.1) |
(15,924.7) |
| EBITDA |
8,407.0 |
11,106.2 |
13,011.6 |
8,354.0 |
| Net Income Pre-Preferred Dividends |
24,348.0 |
31,395.4 |
34,304.3 |
34,999.2 |
| Net Income |
32,152.0 |
33,202.4 |
34,304.3 |
34,999.2 |
Balance Sheet (HK$ mn)
| Balance Sheet |
12/12 |
12/13E |
12/14E |
12/15E |
| Cash & Equivalents |
21,167.0 |
13,982.0 |
17,349.0 |
23,848.8 |
| Total Current Assets |
104,345.0 |
117,859.9 |
127,981.2 |
144,349.8 |
| Net PP&E |
39,801.0 |
40,184.1 |
40,562.3 |
40,935.6 |
| Total Investments |
263,134.0 |
275,883.1 |
288,590.4 |
303,416.8 |
| Total Assets |
407,566.0 |
434,213.1 |
457,419.9 |
488,988.2 |
| Total Liabilities & Equity |
407,566.0 |
434,213.1 |
457,419.9 |
488,988.2 |
| BVPS (HK$) |
144.50 |
155.36 |
166.35 |
177.25 |
Growth and Margins
| Growth & Margins (%) |
12/12 |
12/13E |
12/14E |
12/15E |
| Sales Growth |
(26.6) |
33.2 |
29.4 |
(14.1) |
| EBITDA Growth |
(19.9) |
32.1 |
17.2 |
(35.8) |
| EBIT Growth |
(20.1) |
33.4 |
17.7 |
(36.8) |
| Net Income Growth |
(30.2) |
3.3 |
3.3 |
2.0 |
| EPS Growth |
(30.2) |
3.3 |
3.3 |
2.0 |
| Gross Margin |
65.4 |
65.4 |
65.4 |
65.4 |
| EBITDA Margin |
27.0 |
26.8 |
24.3 |
18.1 |
| EBIT Margin |
25.9 |
26.0 |
23.6 |
17.4 |
Key Risks
- Further delay in project approvals
- Drastic housing price decline
Investment Membership
- Asia Pacific Buy List
- Asia Pacific Conviction Buy List
Summary
Cheung Kong Holdings is a diversified conglomerate with a strong investment thesis, particularly in the context of housing market dynamics in Hong Kong. The report highlights that CK's performance and valuation have been positively influenced by its diversified business portfolio, including Hutchison Whampoa, utility projects, and PRC property developments. The analysis suggests that CK is well-positioned to benefit from the expected increase in project approvals and the shift in demand to mass-market properties. The report maintains a Buy rating on the Conviction List, highlighting the company's potential for upside despite current market challenges. The report also provides a detailed financial analysis, including revenue, cost, EBITDA, and net income projections, as well as balance sheet and valuation metrics. The key risks identified are further delay in project approvals and drastic housing price decline.
