Cheung Kong tipped for a fall
Cheung Kong - controlled by Asia's wealthiest man Li Ka-shing - is poised today to report a drop of as much as 24 per cent in its first-half core earnings, without one-off gains and given lower property sales, according to analysts.
Excluding the contribution from Hutchison Whampoa, Cheung Kong is expected to announce core earnings of between HK$6.3 billion and HK$6.6 billion, a fall of more than 20 per cent from a year ago.
Last year, Cheung Kong reported HK$8.3 billion in interim core earnings, which were boosted by a sharp rise in property sales and a one-off gain from the spin-off of its 33.4 per cent owned Oriental Plaza in Beijing into yuan-denominated Hong Kong real estate investment trust Hui Xian Real Estate Investment Trust.
Bank of America Merrill Lynch predicted a decline in Cheung Kong's core profit because of fewer projects booked in the first half.
It said the Festival City phase three development in Tai Wai would be the major profit contributor, just as Festival City's phase one and two developments, the Le Prime and Oceanaire projects, were a year ago.
Morgan Stanley forecast Cheung Kong's core earnings would amount to HK$6.6 billion, down 20 per cent from a year ago. It said Cheung Kong had sold 2,800 units worth HK$20 billion in Hong Kong so far this year.
Taking into account the contribution from its associate, Hutchison Whampoa, Bank of America Merrill Lynch forecast net profit for Cheung Kong would reach HK$10.6 billion, down 68 per cent from HK$32.25 billion a year ago.
Cheung Kong said last week that it had formed a joint venture with Cheung Kong Infrastructure (CKI), Power Assets Holdings and the Li Ka Shing Foundation to buy Wales and West Utilities, a British gas distribution firm, for GBP645 million (HK$7.85 billion).
Cheung Kong's 30 per cent share of the acquisition cost is HK$2.45 billion. Assuming a 12 per cent total return on the investment, it expects the attributable pre-tax earnings to be HK$294 million annually, a small amount relative to Cheung Kong's size.
'Cheung Kong management has indicated an interest in making more infrastructure investment in conjunction with CKI as it favours the predictable and attractive returns,' Bank of America Merrill Lynch analyst Karl Choi wrote.
'Financially, we cannot quibble with Cheung Kong's decision, especially as its low gearing suggests that it can afford to make these investments to generate higher returns.'
Its net debt to equity was 8.3 per cent.
Meanwhile, associate company Hutchison Whampoa is expected to report modest growth in first-half profit. CLSA forecast Hutchison would announce net earnings of HK$9.5 billion, up 4.3 per cent from HK$9.1 billion a year ago on the back of an increased contribution from CKI and growth in the resilient retail and property sector.
'Weaker oil prices and maintenance have softened [Hutchison oil unit] Husky's contribution and strong competition in the telecom business should lead to minimal year-on-year growth,' CLSA analyst Jonathan Galligan wrote.
According to Morgan Stanley, Hutchison Whampoa's underlying net income would amount to HK$9.3 billion for the six months to June.
Associate company Hutchison Whampoa may post modest growth of this much in first-half profit from a year ago, to HK$9.5 billion