CK Asset Holdings Limited (SEHK: 1113) is one of Hong Kong’s largest property developers. The company engages in property development, property investment, and property management. It also has an aircraft leasing business.
Due to Covid-19, the company faces challenges in many of its properties – whose tenants face financial hardship.
Given the lower asset values across the world and CK Asset’s history of being an acquirer, it also has an opportunity to create long-term value if it makes the right acquisitions.
Given the factors facing CK Asset, is the stock a buy? And how safe is the company’s dividend?
Victor Li and strategy change
Due to a change in strategy under Li Ka-shing’s son (Victor Li) who took control in 2018, CK Asset has become more like a private equity fund rather than a property-only developer.
The company has looked for non-cyclical investments and sources of recurring income, both of which could improve the sustainability of CK Asset’s cash flows.
As a result of the change in strategy, the company’s future may not be as similar to its past. Buying CK Asset shares will be a bet on how Victor Li does in deal-making and unlocking synergies.
Although there is always the probability that Victor Li makes bad deals, I think the stock is a buy. CK Asset trades for just 0.516x book value as of 27 April, which offers investors a degree of margin of safety.
Many of CK Asset’s assets are also naturally profitable and don’t require much execution due to their recurring nature.
Victor has also trained under Li Ka-shing for many years and would have many competitive advantages given the scale of CK Asset. If Victor Li is anything like his father, CK Asset could do well in the long run.
Is the dividend safe?
Given that CK Asset wants to be more like a private equity fund, maintaining an attractive dividend history might be in the company’s best interest as it could lead to lower cost of capital for deal-making.
Many investors would be more likely to invest in CK Asset if the dividend were relatively stable and predictable. It has had a good dividend history since 2015, with the dividend per share (DPS) rising every year.
CK Asset’s dividend per share (HK$)
|
2015 |
2016 | 2017 | 2018 |
2019 |
|
| Dividend Per Share |
1.4 |
1.53 | 1.7 | 1.9 |
2.1 |
Source: AAStocks
Given CK Asset’s low payout ratio of 0.27 for 2019, I think the odds are good that CK Asset will either keep the dividend the same or increase it.
Although analysts estimate that the company will only earn HK$5.842 per share for 2020, down from HK$7.78 per share in 2019, CK Asset’s payout is so low that management could raise the dividend and still have enough money left over. The payout ratio would just be a little higher.
If management increased the dividend per share to HK$2.20 and the analyst estimates for 2020 come true, CK Asset would still have a payout ratio of just 0.376.
Of course, CK Asset management could also decide to keep the payout ratio very low and the stock’s dividend could decline. I don’t think this scenario is very likely though.
Foolish takeaway
Due to its low book value and high-quality assets, I believe CK Asset is a good investment for long term shareholders.
Although there is potential for a dividend cut, its management has the incentive to increase the dividend and they will likely have the resources to do so.