EUR 850.00 For Business Accounts Only

Morningstar | CK Asset Holdings' Results in Line, Shifting Some Focus Back to HK After Diversification

CK Asset Holdings, or CKA, reported in line full-year 2018 results, underpinned by steady rental property income. Booking for property sales were lower, while full-year contributions from infrastructure and utility joint ventures were as expected. Core earnings totaled HKD 24.1 billion, up 19% year on year, in line with our projection. Core EPS of HKD 6.53 is 20% higher year on year, owing to additional share buybacks during the year. Full-year dividend was HKD 1.90 per share, up 12% year on year. Balance sheet remained solid with net gearing dropping to below 4%. We maintain the company's narrow economic moat rating and our fair value estimate of HKD 81. Underscoring the intrinsic value of the company, company directors acquired approximately 24 million shares from early April to late June, at an average share price of HKD 66. Further, the company bought back 4 million shares in September, at an average share price of HKD 56.

For the property development segment, revenue was down 19% on lower booking. Segment profit also dropped 26% as margin also dropped lower. In terms of sales, the company recorded a contracted but unbooked amount of HKD 63 billion, down from HKD 72 billion a year ago. Of that amount, Hong Kong and mainland contributed HKD 52 billion and HKD 8 billion, respectively. The company expects booking to rise to HKD 50 billion in 2019, up 40% year on year.

On the property rental side, rental turnover and operating profit were both down 3% year on year with steady margin, in line with our projection. The decline was due to asset disposals during the year. The hotel segment performed well, with top line up 8% on the back of the city’s tourism bounce back. Margin recovery was stronger than expected, pushed operating profit up by 22%.

The three infrastructure and utility joint ventures, along with the recently signed economic benefit sharing agreement, achieved operating profit of HKD 4 billion, about double the amount seen a year ago.

Aircraft leasing achieved revenue and operating profit of HKD 2.9 billion and HKD 1.3 billion. The results are ahead of our projection. Cash distributions from the REITs were 5% higher year on year, slightly better than projection. In aggregate, the recurrent incomes of the applicable segments are up 22% year on year.

Following the strategic transition in 2017, during which the company moved from a regionally-focused real estate firm to one with diversified yield-oriented assets around the world by deploying HKD 60 billion to acquire three infrastructure and utility businesses outside of Greater China. Two real estate asset disposals, one in mainland, one in Hong Kong, totaling HKD 52 billion were closed during the year. Now, under the management of the new Chairman, Victor Li, the company has shifted some focus back to Hong Kong as property development is a higher return business. It acquired the MTR Wong Chuk Hang station package, expected to yield GFA 1.5 million square feet. The company is also moving ahead with two redevelopment projects, taking advantage of the recent upturn in the city’s property market sentiment while minimizing the market risk associated with government land auction.