BOCOM INTL: Initiate coverage on CTF SERVICES (00659) with a Buy rating and target price of HK$9.42.

BOCOM INTL released a research report stating that CTF SERVICES (00659) was initiated with a buy rating. The fair value based on the sum of parts model plus a 30% liquidity discount yielded a target price of HK$9.42. CTF SERVICES (formerly known as New Creation Group Limited) is a diversified enterprise with operations mainly in Hong Kong and mainland China. The bank believes that CTF SERVICES has multiple favorable factors, including stable cash flow and continued growth in the insurance business driving profit prospects, attractive dividend yield, and potential interest rate cuts to enhance valuation. Over the next five years, the contribution of the insurance business to operating profit (AOP) is expected to surpass other businesses. CTF SERVICES has shown stable financial performance in recent years, mainly benefiting from a stable portfolio of toll roads and logistics business, generating resilient and highly visible cash flow. The bank believes that the insurance business (CHOW TAI FOOK Life) will be the main driver of future profits, with its AOP share expected to increase from 23% in the 2024 fiscal year to 34%/36% in the 2028/29 fiscal year, surpassing the toll road business. A progressive high dividend policy will provide attractive returns. The company's core dividend per share (DPS) has steadily increased from HK$0.58 in the 2020 fiscal year to HK$0.65 in the 2024 fiscal year. Meanwhile, CTF SERVICES' adjusted EBITDA in the past few years has reached HK$5-7 billion, corresponding to a dividend payout ratio of around 35-40%. The bank believes that the company can generate sufficient cash flow to support annual dividend distributions of approximately HK$2.5-3 billion, with core DPS expected to reach HK$0.65/0.68/0.71 in the 2025/26/27 fiscal years (excluding special dividends). Based on the closing price on September 2, the core dividend yield is 8.4%/8.8%/9.2%. In the 2025-29 fiscal years, revenue and AOP are expected to achieve mid-single-digit growth. The bank believes that the insurance business (CHOW TAI FOOK Life) will be the main profit driver, with AOP expected to grow by about 10% in the next two years. The bank estimates that the company's revenue will achieve a 5-year compound annual growth rate of 5.6% in the 2025-29 fiscal years. AOP is projected to grow by 4.7% year-on-year in the 2025 and 2026 fiscal years, reaching HK$4.36 billion and HK$4.57 billion, accelerating to about 8% year-on-year growth in the 2027-29 fiscal years. Major risks: 1) Business portfolio highly dependent on the economies of Hong Kong and mainland China; 2) High interest rates may persist for a longer period; 3) Slow growth in the Hong Kong insurance market; 4) Risks associated with toll road policy adjustments.