CK Asset earnings drop 24% amidst low property development bookings

However, the company still showed a promising outlook, according to S&P Global

CK Asset Holdings Ltd. saw its EBITDA in 2023 decline by 24% due to reduced property development bookings, however, the company's debt-to-EBITDA ratio of 2.8x remained comfortably below the downside trigger of 3.5x, despite a 47% increase in adjusted debt from acquisitions, S&P Global Ratings said.

The property development segment, which contributed 27% to adjusted EBITDA in 2023, is expected to face ongoing challenges in the coming year. With a 49% drop in revenue in 2023, further decline is anticipated for 2024 due to fewer projects slated for delivery. 

Despite this, contracted property sales totalling $19.4b at the end of 2023, with an expected recognition of $7b in 2024, provide a promising outlook, the report noted.

Contributors to contracted sales for 2024 include presale launches of the Wong Chuk Hang Station project (Blue Coast) and the remaining units of the luxury project, 21 Borrett Road in mid-levels. Additionally, project launches in 2025, totalling up to 4,000 units, are seen to bolster contracted sales, including mass-market projects in Anderson Road and Kai Tak.

Moreover, the rental portfolio, comprising 28% of adjusted EBITDA in 2023, may also see marginal improvement in the current year. This is attributed to the full-year contribution of U.K. social housing rental properties acquired in 2023 and the scheduled completion of the Cheung Kong Center II office tower in Central Hong Kong, expected to contribute incremental rental income. 

However, challenges such as high vacancy rates and new office supply in Hong Kong may dampen overall rental portfolio performance amidst a 1.1% increase in total rental income in 2023.

The report also said pub operations, representing 16% of adjusted EBITDA in 2023, are expected to face rising costs throughout 2024. Despite projected sales volume recovery towards pre-COVID levels, competitive pressures may limit margin expansion.

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Meanwhile, the infrastructure and utility assets segment is expected to remain resilient, benefiting from completed regulatory resets and inflation-linked returns in the U.K.

Looking ahead, CK Asset's adjusted debt is expected to remain stable at $47b to $50 b, supported by strong operational cash flows. “In our view, CK Asset will continue to seek investment opportunities in a financially disciplined manner,”  S&P Global Ratings said.

However, a slight increase in the debt-to-EBITDA ratio in 2024 is anticipated due to declining property development revenue.