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COMMERCIAL PROPERTY | Staff Reporter, Hong Kong
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Cheung Kong Infrastructure braces itself for less UK assets

GBP depreciation means slimmer chances of getting new assets in UK.

Acquisitions in the UK, CKI’s largest profit source, are more challenging after Brexit, with potential GBP depreciation, according to Citi. "Our DCF TP is –15% to HK$58/share on a higher discount rate driven by interest rate rise and less M&A from the UK after Brexit," Citi said.

CKI looks expensive at 15.6x FY17E PER and only a 3.8% yield with little EPS growth.

Here's more from Citi:

The base rate in HK was raised for the second time since 2016 to 1%. We see CKI as a victim in a rising interest rate cycle. For every 25bps WACC increase, its DCF will cut 2.3% from our base case.

CKI is still interested in buying assets in the UK, its largest profit source, despite Brexit. But it has adopted a more prudent approach in due diligence taking potential risk of GBP depreciation into account. This could lessen its chances of winning new assets in the UK.

The company recently failed in bidding for assets sold by National Grid. Our TP cut partly reflects our concern of less M&A in the UK for CKI ahead.

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