UBS: CK Asset is nearly net cash after selling UK power assets, providing ammunition for future share buybacks

UBS published a report stating that CK ASSET (01113.HK) announced the sale of a 20% stake in UK Power to Engie Group. At the same time, Cheung Kong Infrastructure (01038.HK) and Power Assets Holdings (00006.HK) will also sell their respective 40% stakes. According to the announcement, CK ASSET will recover HKD 22.15 billion in cash, and the adjusted net debt ratio is expected to further decline from 7.3% in the first half of 2025 to near net cash levels (including the recent recovery of HKD 2 billion from the UK railway joint venture). CK ASSET will record a gain of HKD 8.4 billion from the sale, equivalent to 68% of the bank's original profit forecast for 2026. The annualized profit loss for the fiscal year 2025 is expected to be HKD 2.1 billion.

Management stated that the cash proceeds from the sale will be retained for new acquisition opportunities and general working capital purposes, while believing that this sale will enhance overall shareholder returns. Previously, management emphasized the acquisition of residential land in Hong Kong, distressed commercial real estate assets, overseas infrastructure assets, and share buybacks as its four major capital allocation priorities. After nearly six months of observation, progress on the first three initiatives has been limited. In light of the recent increase in cash recovery from the UK railway joint venture and Blue Coast, along with shares continuing to trade at a forecast price-to-book ratio of 0.41 times for 2026 (well below other major developers' 0.52-0.69 times), the bank believes the likelihood of CK ASSET conducting share buybacks in 2026 has increased. On the other hand, the bank expects CK ASSET will not distribute a special dividend after the transaction is completed, as management previously stated that share buybacks are a more effective tool for enhancing shareholder returns. A positive reaction in the stock price is anticipated following the announcement. The target price is HKD 54.9, representing a 40% discount to the forecast NAV of HKD 91.3, with a rating of "Buy."