CK Asset Holdings Ltd. (HKSE:01113, Financial) (CHKGF, Financial) is a leading multinational corporation committed to achieving long-term sustainable growth through continual strengthening of its existing property businesses centred in Hong Kong and mainland China, with enhancement of its recurring income base via a global investment strategy. The group has diverse capabilities with activities encompassing property development and investment, hotel and serviced suite operation, property and project management, pub operation and investment in infrastructure and utility asset operation.
The company was established in 2015 when Cheung Kong Holdings spun off its property holdings into a separate company as part of a restructuring. CK Asset Holdings began trading on June 3, 2015. After restructuring, Cheung Kong Holdings and Hutchison Whampoa went private, replacing their major listed companies with CK Hutchison Holdings and CK Asset Holdings. Immediately after restructuring, CK Asset Holdings became a constituent of the Hang Seng Index (the blue-chip index of the Hong Kong stock exchange). In 2019, the company acquired U.K.-based brewing company Greene King.
CK Asset is one of the largest property developers in Hong Kong, has a leading market share, an extensive portfolio in mainland China and a significant presence in Singapore and the United Kingdom. With its long history of property development expertise, the company has built many of Hong Kong’s most notable landmark buildings and complexes, some of which form part of its core asset holdings.
In addition to the property businesses, CK Asset has diversified globally through investments with stable recurring revenue on a worldwide basis. It has extended its reach to pub operation as well as infrastructure and utility assets, with investments and operations now spanning continental Europe, Australia, Canada and the U.K.
The following chart provides a snapshot of the company's balance sheet at last year-end. Notice the remarkably low debt for an asset-heavy company. This makes the company resilient to economic shocks such as the pandemic.
The company's operations were obviously deeply affected by the pandemic in the last couple of years, but now it looks like growth is coming back.
| Growth | ||
| Rank: 5 /10 | 5-Year | 1-Year |
| Revenue Growth % | 0.6 | 8.2 |
| EBITDA Growth % | N/A | 18.7 |
| Oprt. Income Growth % | -0.3 | 8.2 |
| EPS w/o NRI Growth % | -4.7 | 32.9 |
| FCF Growth % | -5.8 | -3.1 |
| Book Value Growth % | 7.5 | 6.5 |
The following shows CK's income statement since its initial public offering in 2015.
Valuation
The GuruFocus valuation panel shows that CK Asset is deeply undervalued based on metrics like projected free cash flow and Graham Value. The share price is also well below tangible book value (i.e., Assets - Liabilities - Intangible Assets. Tangible book value per share is important because it shows the value of a company's net assets minus its intangible assets. Intangible assets are important, but they're not physical assets that can be readily sold if the company gets into trouble.)
In addition, tangible book value has increased at an over 5% compound annual growth rate over the last five years.
In addition, the projected FCF value, which deals with situations where free cash flow is erratic, takes 80% of the book value and adds it to the present value of free cash flow averaged over six years. The projected FCF value is more than twice the company's stock price, indicating a large margin of safety.
The Graham Value is also a conservative valuation approach, elucidated by Benjamin Graham, the father of value invesing, that measures a stock's fundamental value by taking into account the company's earnings per share and tangible book value per share. (Graham Number = square root of 22.5 x trailing 12-month EPS x book value per share). The 22.5 is included in the formula as a rule of thumb to account for Graham's assumption that the price-earnings ratio should not be over 15 and the price-book ratio should not be over 1.5 for an undervalued stock. The Graham Number is the upper boundary of the price range that a defensive investor should pay for the stock. According to this theory, any share price below the Graham Number is considered undervalued, and thus worth investing in. Currently, there is a 55% margin of safety, which is below the Graham number.
The company generates solid cash flow and has a very robust capitalization rate of over 11%. The capitalization rate is defined as operating cash flow divided by enterprise value. It is used in asset heavy sectors like real estate to compare properties or portfolios of properties in a capital structure agnostic manner.
| Exchange | Symbol | Company | Industry | Market Cap ($M) | Capitalization Rate | Owners Earnings Yield | FCF Yield % |
| HKSE | 01113 | CK Asset Holdings Ltd | Real Estate | 24248.864 | 11.4% | 11.6% | 11.54 |
While CK Asset's return on equity is low, note the stock is trading at a price-book ratio of 0.51. Therefore, the price-book-adjusted ROE is around 11.3.
| Profitability Rank | |||
| Rank: 8 /10 | Current | Industry Median | Historical Median |
| Operating Margin % | 38.57 | 14.16 | 38.54 |
| Net Margin % | 34.59 | 10.86 | 44.48 |
| ROE % | 5.78 | 5.09 | 10.02 |
| ROA % | 4.00 | 1.95 | 6.67 |
Below is a table comparing various Hong Kong property development companies of similar size. CK compares well against them. The value in Hong Kong is much better to what we would see here in North America.
| Exchange | Symbol | Company | Currency | Current Price | ROE % | ROA % | Financial Strength | Dividend Yield % | Industry | Market Cap ($M) | Price-to-Tangible-Book | Capitalization Rate | `ROE % Adjusted to Book Value` |
| HKSE | 00012 | Henderson Land Development Co Ltd | HKD | 33.1 | 3.99 | 2.64 | 4 | 5.44 | Real Estate | 20413 | 0.48 | 3.79% | 8.14 |
| HKSE | 00016 | Sun Hung Kai Properties Ltd | HKD | 96.9 | 4.77 | 3.56 | 6 | 5.11 | Real Estate | 35774 | 0.47 | 9.87% | 10.15 |
| HKSE | 00083 | Sino Land Co Ltd | HKD | 11.26 | 8.23 | 6.88 | 9 | 4.97 | Real Estate | 11071 | 0.55 | 31.87% | 14.96 |
| HKSE | 00688 | China Overseas Land & Investment Ltd | HKD | 23.1 | 12.32 | 4.76 | 5 | 5.11 | Real Estate | 32208 | 0.60 | 16.03% | 19.87 |
| HKSE | 1113 | CK Asset Holdings Ltd | HKD | 52.25 | 5.78 | 4 | 6 | 4.21 | Real Estate | 24249 | 0.51 | 11.37% | 11.33 |
| HKSE | 1972 | Swire Properties Ltd | HKD | 19.16 | 2.46 | 2.11 | 6 | 4.96 | Real Estate | 14279 | 0.38 | 7.24% | 6.15 |
| HKSE | 1997 | Wharf Real Estate Investment Co Ltd | HKD | 37.95 | 2.13 | 1.59 | 5 | 3.45 | Real Estate | 14678 | 0.56 | 5.77% | 3.8 |
| HKSE | 2007 | Country Garden Holdings Co Ltd | HKD | 4.79 | 14.5 | 1.35 | 3 | 11.62 | Real Estate | 13947 | 0.45 | 26.89% | 30.85 |
Conclusion
CK Asset Holdings appears to be an excellent value as the Hong Kong and greater China economy recovers from the pandemic. The company has very low debt and is financed mainly by equity. The company pays a good and growing dividend of 4.21%, with a low payout ratio of 33%. This is a solid value and income stock. The main issue holding back the stock appears to be the political, social and governance issues in Hong Kong and China. Thus, a big part of the bet in investing in CK Asset is that China wants to encourage economic activity to build the prosperity of the country and wants to preserve the role of Hong Kong as a gateway to greater China.
