UBS: Cheung Kong (01113) Maintains Cautious View on Hong Kong Residential Market, Special Dividend may be Decided Upon Mid-term Performance Announcement

UBS released a research report stating that Cheung Kong (01113) maintained a cautious view on the Hong Kong residential market at the Asia Investment Forum on May 26. Cheung Kong expects the rental rate for its Cheung Kong Group Centre Phase II to exceed 50% by the end of 2026, with the current rental rate at about 20% and current rent rising to over HK$100 per square foot. In retail, rental performance in its shopping malls is stabilizing. UBS has given Cheung Kong a "buy" rating with a target price of HK$62, a 40% discount from the forecast net asset value. The management emphasized that although local pent-up demand and stable inflow of mainland buyers support the Hong Kong residential demand, especially properties below HK$8 million, overall momentum is unlikely to significantly accelerate. Property prices continue to edge up modestly, but trading activity in the mid to high-end market is shrinking, and demand for luxury homes remains weak. The management pointed out macro uncertainties, including geopolitical risks and ongoing inflationary pressures, reinforcing their view that the market is in a stabilizing rather than robust upward cycle. In terms of development, Cheung Kong expects pressure on Hong Kong property development profit margins as most of the projects booked are previously sold projects. UBS noted that with the completion of the sale of UK Power Networks (UKPN), Cheung Kong will switch to a net cash position and maintain a high level of discipline in capital allocation. With government bond yields at 4 to 6 basis points, the management believes that the urgency to redeploy funds into low-return development projects is limited and continues to focus on defensive, income-generating assets that meet the threshold of high double-digit profit margins for Hong Kong development projects. The board of directors will discuss the possibility of distributing special dividends when the 2026 first-half results are announced, reflecting the substantial proceeds from the UKPN transaction.