Cheung Kong sets eyes on aggressive multi-region expansion

Due to continued net cash inflow.

It has been noted that becoming net cash in the future as a result of continued net cash inflow will enable Cheung Kong Property (CKP) to pursue aggressive multi-region expansion.

According to a research note from Jefferies, further, it believes CKP enjoys the uniqueness to seek NAV growth through synergetic cooperation with other entities under the CK Group.

In spite of lower-than-expected DPS, resilient operation and acquisition growth at cheaper cost suggest significant NAV expansion, the same as CK's past practice, said the report.

Here's more from Jefferies:

FY15 results in line: First set of full-year results after group restructuring met our expectation with core profit of HKD15.6bn, up 29% yoy, while contribution for properties previously held by Hutchison Group accounted for the period since June 3, 2015. In other words, full impact will be recognized in FY16.

Property sales underpinned by strong sales recognition in China represented 72% of total operating profit while rental (including ex-Hutch properties) soared 1.2x yoy to HKD4.5bn. In summary, profits generated from HK and China were 49% and 48% of the total, respectively. Full-year DPS (HKD0.35 interim DPS) amounted to HKD1.4, implying 34.7% payout ratio, higher than the mean of 25% in the past five years for Cheung Kong before restructuring

Visible earnings pipeline: In FY15, CKP sold around 3,800 units in HK for HKD30bn (over 50% of its total sales achieved), representing about 20% and 30% of the primary market and amid the top five developers, respectively. It solidified its leadership and suggested high capability in timing the sales window while HK home price began to turn south since October 2015.

espite rising market uncertainty, about HKD23bn of presold but unrecognized sales will support future earnings, coupled with over 3,500 new launch units in HK as expected in 2016, according to Ricacorp. With 12.5m sqm development land bank in China (92% of total), potential sales shortfall in HK due to unexpected sluggishness could be covered by China sales. It happened in 2013.

Building war chest for growth: Its end-2015 net gearing improved to below 6% from 11% at interim. Its well-managed debt profile shows the maturity of its HKD61bn (down 18% in six months) spreading over a period of ten years. While most peers were active in land purchase along rising prices, CKP will robustly grow its NAV on countercyclical acquisitions.