Hong Kong Developer CK Asset Holdings Faces Turbulent Times: Are Shares Worth Buying?

Hong Kong, China – CK Asset Holdings (OTCPK:CHKGF) has been facing challenges amidst tough economic conditions in Hong Kong. The company, known for its asset-light model focused on recurrent revenues and cash flows, has seen housing prices drop significantly in the first quarter of 2024 and office vacancies reach their highest level in 20 years.

Despite expectations of stability, CK Asset’s management decisions have led to a decline in investor confidence. The company cut its dividend by 12% and sold units in a new residential development below cost. These actions, combined with general poor sentiment towards the Hong Kong property market, have resulted in a nearly 30% decrease in the value of the company’s ADRs.

Financially, CK Asset’s performance in the second half of 2023 was lackluster but not disastrous. Weaker results from property sales and a significant miss in Pub Operations were offset by better-than-expected performance in the hotel and serviced suite business. However, ongoing weakness in the Hong Kong property sector coupled with management choices have exacerbated the company’s situation.

Management’s decision to launch the Blue Coast residential project at prices below construction cost further eroded investor confidence. The company’s lack of communication regarding its land bank intentions and the dividend cut has left investors uncertain about CK Asset’s future prospects.

Operating conditions in Hong Kong continue to pose challenges for CK Asset. Higher mortgage rates have led to a decline in housing prices and increased unsold units. Retail sales have also been impacted, with three consecutive declines and lower spending from mainland Chinese tourists. Additionally, the office sector faces high vacancy rates, making it difficult for CK Asset to lease up new properties.

Looking ahead, the outlook for CK Asset remains uncertain, with expectations of a continued decline in attributable profits for FY’24. While a rebound is anticipated in FY’25, long-term growth projections remain modest. Despite the current challenges, some analysts believe that CK Asset’s shares are undervalued, but caution is advised given the uncertainties surrounding Hong Kong’s property market and management’s strategic decisions.