Cheung Kong Property Holdings:In line,New investments bear fruit with dividend hike;CL-Buy

What surprised us.

CKP reported 1H17 underlying profit of HK$9,480mn, up 14% yoy, withunderlying EPS growing faster at +17% yoy amid c.HK$7bn share buybackYTD. Development profit of HK$9.1bn, up 33% yoy, was a key earningscontributor, with GP margin up 10 pp yoy to 42%, due partly to the booking ofa Beijing luxury project. CKP achieved HK$41bn on contracted sales during1H17 (vs only HK$26bn in 1H16), of which HK$28/13 bn was from HK/ Chinarespectively. 1H17’s attributable recurring EBIT amounted to HK$5.6 bn, up28% yoy, and 38% of the total, with growth driven mainly by new investmentsin aircraft leasing and Duet (only 1.5 months of contributions). Interim DPSsaw an 11% hike yoy, an acceleration from FY16 DPS’s 9% yoy. BVPS atHK$74.54, +5% hoh, with a positive revaluation from its Central office portfolio(cap rate -25bps to 4.5%) but a negative adjustment for its 1881 mall.

What to do with the stock.

Much of the discussion at the briefing was on its strategy in new investments.

Management explained their focus of returns driven IRR evaluation amidconservative gearing assumptions, and do not view gearing (reaching c.20%net gearing on pro forma assuming all announced transactions completed),nor target level of recurring EBIT (the Chairman mentioned a 50% growthtarget previously) as constraints on growth. Rather, the focus is on whetherthere are opportunities fitting their stringent requirements. Looking ahead,CKP has HK$68bn contracted sales yet to be booked, plus another c.1,200units available for launch in HK. We revise our 2017E-19E EPS by up to +6% ondisposal gains and a higher run-rate at new investments, with a new 12-moNAV-based TP of HK$77.90 (from HK$76.10). CKP trades at 12X P/E and 2.6%yield in 2017E, and at a 37% disc. to FY18E NAV. Buy, on CL. Risks: Worsethan-expected conditions for asset monetization.