20160405-高盛-长实集团-01113.HK-Look_for_higher_recurring_income_amid_active_capital_management_13页_467kb

Summary of Cheung Kong Property Holdings (CKP) Investment Analysis

Core Content

This report provides an analysis of Cheung Kong Property Holdings (CKP) focusing on its capital management, recurring income, valuation, and potential for growth. The report suggests that CKP's recent share buyback is a sign of more active capital management and highlights the company's strong balance sheet, which could support further M&A or increased dividends. The valuation is based on the company's Net Asset Value (NAV), and it is currently trading at a significant discount to the estimated FY16E NAV.

Main Points

• Share Buyback: CKP executed a HK$632 million share buyback in late March, indicating a shift towards active capital management. This action could support the share price and is part of a broader strategy to enhance shareholder value.
• Recurring Income: The report anticipates a 39.3% year-over-year increase in recurring income to HK$2.09/share in 2016E, driven by full-year contributions from ex-Hutchison assets and positive rental reversions.
• Contracted Sales: CKP is expected to maintain a solid asset turnover with contracted sales of approximately HK$43 billion in 2016E, with HK$19 billion from Hong Kong, HK$22 billion from China, and HK$2 billion from the UK.
• Dividend Payout: The dividend payout ratio is expected to increase to 35% in 2016E, with DPS projected to rise to HK$1.48/share, up from HK$1.40 in 2015.
• Valuation: As of April 1, 2016, CKP's share price of HK$49.40 is at a 47.0% discount to the FY16E NAV of HK$93.24. The 12-month price target is set at HK$70, reflecting a 25% discount to the FY16E NAV.
• Balance Sheet: CKP has a low net leverage of 5.7% as of end-2015 and a strong cash flow position, which allows for potential M&A activities and further capital management.
• Debt Headroom: If CKP increases its gearing ratio by 10 percentage points, it could have up to HK$26 billion in debt headroom for M&A or other initiatives.

Key Financial Highlights

• EPS (Earnings Per Share): Expected to grow from HK$4.43 in 2015 to HK$4.56 in 2018E, with a 2.4% increase in FY16E.
• P/E Ratio: Expected to decrease from 13.1 in 2015 to 10.8 in 2018E, reflecting a more conservative valuation.
• Dividend Yield: Projected to increase from 2.4% in 2015 to 3.2% in 2018E.
• NAV: Estimated at HK$93.24 per share for FY16E, with a 47.0% discount to the current share price.

Investment View

• Rating: Buy
• Reasoning: CKP's strong balance sheet, potential for recurring income growth, and active capital management initiatives make it an attractive investment. The significant discount to NAV suggests a good entry point.

Key Risks

• Asset Monetization and M&A: Performance of asset monetization and M&A activities may be worse than expected, which could impact the company's valuation and growth prospects.

Comparative Performance

• Share Price Performance: Over the past 3 months, CKP's share price increased by 0.8%, while it decreased by 15.2% over 6 months. It is relatively outperforming the MSCI Hong Kong index.
• Peer Group: CKP is slightly below the Asia Pacific Property Peer Group average in terms of returns.

Conclusion

CKP is positioned for growth in recurring income and has a strong balance sheet to support further capital management activities. The company is currently undervalued, offering a 47.0% discount to its FY16E NAV. With a solid asset turnover and potential for increased dividends, CKP is considered an attractive investment opportunity.