CK Asset Holdings Ltd (1113): Anderson Road project to be partially rebuilt

CKA has decided to rebuild three out of the six residential towers at its Anderson Road project, following the finding that the steel reinforcement had deviated from the approved plans. The reported incident is not new as it was first discovered in 2024, but only now has CKA officially announced the follow-up actions. While we have no solid grasp of the actual reconstruction costs, for now we roughly estimate an additional construction cost of HK$1.2-1.4bn (equivalent to 0.8-0.9% of market cap), and this may drag down the DP margin of this particular project from 19% to 8-10% (or ~8% of full-year profit). This, however, does not consider potential recovery from insurance claims and litigation, as this involves a potential bribery case at the contractor level, not CKA. We expect a mildly negative share price reaction, but we remain Overweight on CKA given: (1) the low impact from a rate hike scenario due to net cash; and (2) more potential capital recycling.