Exclusive | CK Asset is no longer a pure property company, a year after Victor Li takes over the flagship firm from ‘Superman’ dad
- Property sales, the entirety of Cheung Kong Property’s revenue when Li Ka-shing founded it in 1972, made up 45 per cent of CK Assets’ income last year
- The company has amassed a war chest of HK$60 billion for acquisitions, having spent HK$100 billion in 2017 and 2018 buying assets
Victor Li Tzar-kuoi had a surprise for shareholders last month when he announced the 2018 earnings of the flagship company founded by his father: he paid the highest dividend growth among Hong Kong’s listed property developers.
For CK Asset Holdings, the record payout – even if its core profit missed consensus estimate – was the culmination of a three-year restructuring that transformed one of the city’s best-known developers into one of Asia’s largest conglomerates, with operations spanning energy, global infrastructure and aircraft leasing.
“CK Asset is like a private-equity fund now, like Canada’s Brookfield [Asset Management],” the 120-year-old company with US$330 billion of assets under management, said Jonas Kan, head of Hong Kong research at Daiwa Capital Markets. “They are huge, they look for investment opportunities across the risk-return spectrum, with more exposure on real estate and infrastructure.”
The transformation – driven by over HK$100 billion (US$12.7 billion) of acquisitions in 2017 and 2018 – increased the conglomerate’s recurring revenue to over 50 per cent last year, compared with 2016, said Gerald Ma Lai-chee, CK Asset’s general manager of corporate business development.
That provides CK Asset with an operational diversity that reduces its reliance on Hong Kong’s fickle property market, and shields it from political uncertainties such as the US-China trade war and Britain’s exit from the European Union.
“There are too many uncertainties,” Ma said in an interview with South China Morning Post, adding that CK Asset is now looking for investments with contracted annuity. “Once we sign the contracts, we can generate the returns, which provide predictability.”
To finance its acquisitions, CK Asset has amassed a war chest of about HK$60 billion. The company is looking for investments in Common Law jurisdictions similar to the UK, Hong Kong, Canada, and Australia, as well as projects in developed countries.
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The group is also looking for “non-cyclical investments that will not be affected by economic downturns,” Ma said.
Working his way up over 23 years from a property salesman to head of CK Asset’s investment team, Ma usually spends two weeks every month outside Hong Kong in search of acquisitions, looking at more than 10 projects at any one time.
CK Asset’s recent acquisitions included Reliance Home Comfort, a supplier of water heaters, furnaces and air conditioners for Canadian households; a 50 per cent interest in Canadian’s largest off-airport car park operator Park’N’Fly; and 50 per cent stake in one of the UK’s three rolling stock operators UK Rails.
The non-property assets including Hutchison Port Management, telecommunications, A/S Watsons retailing, infrastructure and energy were injected into CK Hutchison Holdings, which would also have Victor Li as the chairman.
But the strategy changed, complicated by the political uncertainties brought by Brexit, and the ongoing US-China trade war. That prompted the company to go on a shopping spree for assets that can bring recurring income, said Ma.
“You still need to use heater in Canada during winter even if its economy slows down,” he said.
Billionaire Li Ka-shing retires, hands corporate empire’s reins to elder son Victor
CK Asset is the 13th-largest company on the 50-stock Hang Seng Index, carrying 1.89 per cent of the city’s benchmark. Its stock price has fallen 2.9 per cent since the company was spun out of the Li family’s 2015 restructuring, the 14th-biggest loser among the index’s members during the period.
The problem, according to Ma, is that investors regard CK Asset as a property developer, giving it a 40 to 45 per cent discount to net asset value.
“Generally speaking, for companies focusing on quality investments and income predictability, they should be traded at a 15 per cent discount to net asset value,” he said.
Ma said the company will not exit the Hong Kong residential property market but will be selective investments in the light of the high property prices in the city.
Kan of Daiwa sees the building up of its recurrent earnings base as a sustaining strategic move of CK Asset, and it will continue to look for opportunities to squeeze profits from existing property assets such as the redevelopment of the 23-storey Hutchison House in Central or increased building density.
During the earnings press conference last month, Victor repeatedly told reporters he did not feel any change in the way the company runs business before or after the elder Li’s retirement.
“The entire group’s DNA is as an investor, rather than a property company,” Kan said. “They chase after shareholders’ returns, instead of properties. That doesn’t change regardless whether its is being led by the elder Li or the younger Li.”