CK Asset Holdings Ltd:Down to Neutral post outperformance;likely to focus more on acquisitions than disposals in near term

We downgrade CKA from Buy to Neutral, and remove the stockfrom our regional Conviction List, on the back of share priceoutperformance. CKA’s shares have risen 46% in the last 12months(as of Feb 2, 2018), versus the FTSE EPRA/NAREIT HK and MSCIHK +31% and +29%, respectively. We attribute the outperformancefor CKA partly to its strong commitment to capital managment.Even though The Center disposal could add 5% to NAV uponcompletion, we expect the company to pursue acquisition eventsgoing forward, rather than disposals, in an effort to boost recurringincome and thus drive future dividend hikes.

Downgrade to Neutral post-outperformance

We downgrade CKA from Buy to Neutral, and remove the stockfrom our regional Conviction List, on the back of share priceoutperformance which leaves potential upside to our new TP belowthat for peers under coverage. Since we added CKA to the Buy Liston July 16, 2015, its shares have risen 12% vs FTSE EPRA/NAREITHK and MSCI HK +31% and +21%. Since adding CKA to theConviction List on May 4, 2016, shares have risen 49% vs +31%and +40% for the indexes.

We attribute CKA’s outperformance partly to its strong commitmentto capital management, with c.HK$9bn worth of share buybackssince 2016, and the fast pace of dividend hikes (+9.3% in 2016and+10.5% in 1H17), in addition to timely monetization of projects,such as the announced disposal of Century Link in Shanghai and TheCenter in Hong Kong. The stock is now trading at 30% discount toour estimate for FY18E NAV, compared to the PropCos sectoraverage of 35%, and one of its key peers, SHKP’s 40% discount toFY19E NAV.