When CK Asset Holdings (OTCPK:CHKGF)
[1113.HK] was originally created as Cheung Kong Property, the idea is
that this would be more or less a pure play on property development and
management in China and Hong Kong. That lasted about a year or so,
before management announced an intention to diversify beyond property
and pursue more of a conglomerate-type structure with investments
outside of property development or property management.
Although
there are some concerns and drawbacks to this move, net-net, I think it
is a positive decision for shareholders. Rather than being tied to the
ups and downs of the property cycle (which is looking more “down” in
CKA’s core markets), the company’s managers can see fit to recycle and
allocate capital wherever the best long-term opportunities may lie. The
company hasn’t abandoned property, but can now (I believe) make better
long-term decisions without having to stick to a rigid mandate.
Valuing
this company ahead of what is almost certain to be additional
investments in non-property assets is challenging. I believe the company
can generate good adjusted earnings growth (around 7%) even with
single-digit ROEs, supporting a fair value of over $10.50 for the ADRs,
but there are a lot of unknowns about the composition of earnings five
or 10 years down the line.
I would note that CKA’s
ADRs do not offer good liquidity. Investors who have the option to
invest in the Hong Kong-listed shares should certainly consider doing
so.
Read more here:
CK Asset Holdings Prizing Profits Over Property Pure-Play
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