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<Research>UBS: CKA Near Net Cash After Selling UK Power Assets, Providing Ammunition for Future Shr Buybacks
Recommend 15 Positive 27 Negative 33 |
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UBS report said that CK ASSET (01113.HK) announced the sale of a 20% stake in UK Power to Engie Group. At the same time, CKI HOLDINGS (01038.HK) and POWER ASSETS (00006.HK) would also sell their respective 40% stakes. According to the announcement, CKA will retrieve HKD22.15 billion in cash, with the pro forma net debt ratio expected to decrease from 7.3% in 1H25 to near net cash levels. CKA will record a gain of HKD8.4 billion from the sale, equivalent to 68% of the broker's previous earnings forecast for 2026. Management stated that the cash from the sale will be reserved for new M&A opportunities and general working capital purposes, while believing that the sale will enhance overall shareholder returns. Prior to this, management had underscored four major capital allocation priorities: acquiring residential land in Hong Kong, distressed commercial real estate assets, overseas infrastructure assets, and share buybacks. After nearly six months of observation, the broker found that progress on the first three initiatives has been limited. Given the recent increase in cash recovered from the UK railway joint venture and Blue Coast, the broker believed the likelihood of CKA conducting share buybacks in 2026 has increased. On the other hand, UBS forecast CKA will not distribute a special dividend after the transaction, as management had previously stated that share buybacks are a more effective tool for enhancing shareholder returns. The stock price was expected to react positively following the announcement. The target price on CKA was HKD54.9, with a Buy rating. AASTOCKS Financial News Website: www.aastocks.com |
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