CA - CK Asset Holdings: It's Not About Hong Kong Anymore Management's Focus Seems To Have Shifted
2024-07-12 02:44:22 ET
Summary
- I argue that CK Asset Holdings' focus has shifted to preserving wealth for Li Ka Shing's heirs by investing in low risk/low return businesses in politically stable countries.
- Forty percent of its capital is invested in low return UK Assets that produce 33% of its revenue and 6.5% of its profit.
- More than three quarters of CHKGF's profits are sourced from Hong Kong property. Prices and transactions are dropping like a stone, and there is no bottom in sight.
CK Asset Holdings Limited ( OTCPK:CHKGF ) is controlled by Victor Li, and it trades at a significant discount to Net Asset Value. However, this discount is warranted because;
- The majority of CHKGF's profit is produced in its Hong Kong property business. Hong Kong property prices and rents are falling, and will likely continue to do so as Hong Kong's economy and property markets are integrated into the Greater Bay Area.
- Approximately 40% of the company's capital is invested in a UK Pub business that produces a third of CHKGF's revenue. Basically, the business breaks even and does not cover its cost of capital. It appears to be a multi-decade land play designed to preserve the wealth of the controlling Li family.
- A large portion of CHKGF's capital is invested in low risk / low return regulated utilities. Typically, such businesses carry a large degree of debt so that the stable regulated cash flows from such businesses can be leveraged to produce an acceptable ROE. Although CK Asset Holdings doesn't attribute debt to individual subsidiaries or operating segments, one can infer from the relatively low level of debt in the company as a whole as evidenced by its 10.6% Long-Term Debt / Equity Ratio, that CHKGF does not pursue this course of action.
- Many of CK Asset Holding's assets are owned in conjunction with other investment vehicles that are also controlled by Victor Li. It is unclear who's interests are paramount - the interests of the Li Family, the interests of the minority shareholders of CHKGF, or the interests of the minority shareholders of the other Victor Li controlled companies that have ownership stakes in the same companies that CK Asset Holdings does.