Investment bank analysis on CKH Holdings' sale of port assets: returning to net cash, or distributing a special dividend of 25 HKD?

CK Hutchison Holdings Limited has reached an agreement with BlackRock to sell its core global port business assets, including two major ports in Panama, for a transaction amount of USD 22.8 billion. This move will bring over USD 19 billion in cash flow to CKH, significantly improving its financial condition, with an expected net debt ratio to fall below 18%. Through this acquisition, BlackRock will become one of the world's top three port operators, reflecting changes in the global trade landscape.

In this regard, Hong Kong Economic Times ENET stated that aside from the political issue raised by U.S. President Trump about "taking back the Panama Canal" after he took office, investment banks generally agree that CKH is selling at a premium financially in this transaction, and the group will turn into net cash after the deal, potentially allowing for special dividends to shareholders.

Credit Lyonnais: The transaction will increase CKH's net asset value by 13% in 2025

Credit Lyonnais pointed out that CKH is selling non-listed port assets for USD 19 billion, which corresponds to an EV/EBITDA of about 13 times, higher than the general transaction value of 10 times in the industry. Additionally, the price is 43% higher than the asset market value estimated by the bank, and it is expected to increase CKH's net asset value by 13% in 2025.

Credit Lyonnais noted that CKH's stock price is trading at a discount of about 56% to its net asset value, giving CKH a target price of HKD 61 and maintaining an "outperform" rating.

Morgan Stanley: Eliminating uncertainty of Panama ports, CKH may distribute special dividends

Morgan Stanley agreed that CKH is selling port assets for USD 19 billion. Based on the 2023 annual report, CKH's port assets are valued at USD 12.6 billion, with USD 4 billion in liabilities. Therefore, the price for the sale of port assets is at a premium to the asset value, and after CKH recovers USD 19 billion in cash, the company will turn into a net cash position, and CKH shareholders may receive special dividends.

Morgan Stanley indicated that the bank values CKH's port assets at about USD 11 billion, and even with a 50% discount, the asset value created by the transaction is about USD 4 billion, which adds value for CKH shareholders. Additionally, selling the port assets will eliminate the uncertainty surrounding CKH's stock price related to the Panama ports that has plagued it this year.

The Morgan Stanley report mentioned that the bank served as the financial advisor for Vodafone in the merger transaction with CKH, and therefore did not set an investment rating or target price for CKH.

UBS: CKH returns to net cash, can flexibly reinvest in other businesses

UBS believes that if the transaction is realized as scheduled, it will be a very positive factor for CKH's stock price, as CKH is currently valued at only 0.23 times the book value. As for how much room there is for the stock price to rise, it depends on the extent to which CKH returns to shareholders, and it is believed that a response from management is awaited