Monday, June 25, 2018

CK Asset Following A Different Path, And The Market Doesn't Like It

CK Asset Holdings' (OTCPK:CHKGF) (1113.HK) controlling Li family has laid out a relatively clear vision for what they want CK Asset to be - a diversified asset conglomerate that invests in property development, property management, and infrastructure assets. Unfortunately, this is not really in keeping with what the market wants, as many see this as turning away from CK Asset's traditional strengths and competencies, diluting returns, and missing out on the gains to be made in markets like China and Hong Kong.

That disappointment has translated pretty directly into disappointing share price performance, with the local shares down about 5% year-to-date and down closer to 10% from the time of my last article. While I highlighted some of the risks in this new strategy, I believe I underestimated how the market would respond to this shift, particularly as the market sees this as a company that is turning away from high-margin development activities and buying into income-producing properties at high multiples (which isn't entirely wrong). Although I believe CK Asset is going to have to earn back the benefit of the doubt, I continue to believe that long-term earnings growth in the neighborhood of 7% can support a fair value more than 20% above today's price, making this a more interesting contrarian call.

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CK Asset Following A Different Path, And The Market Doesn't Like It

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