CK Asset is no longer a pure property company, a year after Victor Li takes over the flagship firm from 'Superman' dad

By Peggy Sito peggy.sito@scmp.com / https://www.scmp.com/ | April 5, 2019 10:25 AM SGT
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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.
Property sales, the entirety of Cheung Kong Property's revenue when Li Ka-shing established the developer in Hong Kong, made up 45 per cent of CK Assets' income last year, seven months after Victor took over as chairman.
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"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."
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Li Ka-shing (right), founder of CK Asset Holdings and CK Hutchison Holdings, with Victor Li (left) during a press conference in Hong Kong, during which the elder Li announced his retirement to hand over his business empire to his elder son. Photo: AP
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.
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Gerald Ma Lai-chee, CK Asset Holdings' general manager of corporate business development during an interview at Cheung Kong Center in Central. Photo: Nora Tam
"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."
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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.
The group is also looking for "non-cyclical investments that will not be affected by economic downturns," Ma said.
Accipiter Holdings, the aircraft leasing unit of the group, operates 65 Airbus and Boeing aircraft for leasing to 65 airlines around the world. CK Asset would be open to bidding to buy Avolon Holdings, the world's largest aircraft leasing company, if its parent HNA Group was willing to offer it for sale, Ma said. HNA, which sold 30 per cent of Avolon to Japan's Orix Corporation last year, was not available for comment.
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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.
Stable income was not the original plan. When Li Ka-shing " known affectionately as 'Superman' in Hong Kong for his deal making prowess " engineered the restructuring of his business empire, he had envisioned CK Asset as the flagship for his hotels, office towers, commercial property and housing projects.
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.
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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.
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.
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."
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2019 South China Morning Post Publishers Ltd. All rights reserved.
Copyright (c) 2019. South China Morning Post Publishers Ltd. All rights reserved.