Cheung Kong Target Price HK$144 Goldman Sachs BUY

Goldman Sachs resumed coverage on Cheung Kong (Hong Kong stock code 0001) with a “neutral” rating and a target price of HK$144, up from HK$138 previously. It updated CKH’s property schedule and incorporated its recent land acquisitions, leading to revisions of 2010-2013 EPS by -12% to +64%. Since introducing new campaigns in late-February (e.g. cash rebate for buyers who opt to complete the transactions early, do not take secondary mortgages), CKH has been able to speed up its property sales for Festival City Phase 2 and has cumulatively sold 1,100 out of the total 1,368 units, Goldman said. The house estimated the group has secured HK$8.1bn in contracted sales and 66% of development property profit in Hong Kong for this year. Pending government approval, CKH targets launching three more projects in 2011, including the Hung Shui Kui site, Lohas Park Ph 3 and Festival City Ph 3. But Goldman is also concerned about the abundant supply in these districts which may affect CKH’s ability to lift ASP. It believes value accretion from a potential spin-off of its China rental property assets into an Rmb REIT is unlikely to be significant, as China rental projects only account for 4% of CKH’s NAV.