Cheung Kong

Operations fit as Li flagships take profit hit

Sharply lower profits seen for Cheung Kong in 2012 amid lower attributable earnings from Hutchison and a decline in property earnings

PUBLISHED : Monday, 25 March, 2013, 12:00am
UPDATED : Monday, 25 March, 2013, 5:40am

Property developers Cheung Kong and Hutchison Whampoa will report sharply lower profits for 2012 when they unveil their annual results tomorrow.

Cheung Kong's bottom line for the year is likely to be between HK$22 billion and HK$26 billion, according to analysts' estimates, versus a net profit of HK$46 billion in 2011.

Hutchison is expected to report net profit of between HK$21 billion and HK$25 billion, given the absence of a sizeable disposal gain to boost its 2012 result.

In 2011 it reported net profit of HK$56.02 billion, helped by a one-off gain from spinning off port and property assets.

The two flagship companies, controlled by Li Ka-shing, Asia's wealthiest person, are due to announce their full-year results for 2012 tomorrow.

Goldman Sachs said in a research report issued at the end of last month: "Excluding property revaluations, we forecast [Cheung Kong's] core net profit of HK$24 billion, down 39 per cent year on year."

This was because of lower attributable earnings from Hutchison and a decline in earnings from property sales, it said.

Cheung Kong's property-related profit would be HK$10.7 billion, down from HK$11.5 billion in 2011, according to Goldman. Hong Kong property sales for the year are likely to run to HK$27 billion, in line with sales in 2011; while in China, contracted sales are likely to be up more than 60 per cent in 2012.

Looking ahead, investors are likely to focus on Cheung Kong's project launches and pricing strategies to deal with the impact of the government measures, Goldman said.

David Ng Ka-chun, property analyst at Macquarie Securities, said he believed Cheung Kong would outperform other property developers. Ng, who expects a 10 per cent decline in Hong Kong's physical housing market, recommends the stock, as the company's product mix and flexible property sales strategy should be favourable in a down property market.

He said Cheung Kong was serious about raising its market share this year, with its plans to launch five projects of 5,238 units, worth HK$30 billion.

While Hutchison's net earnings will be sharply lower given the absence of one-off capital gains, core profit is expected to rise between 7 per cent and 8 per cent, according to analysts, thanks to a higher contribution from the group's roads and utilities arm, Cheung Kong Infrastructure, and stronger profit growth from mainland property and retail businesses.

Cusson Leung Kai-tong, an analyst with Credit Suisse, said in a report last week: "Except for container ports and Husky [Energy of Canada], we expect all Hutchison business segments to show improvement from the previous year." Leung said he expected Hutchison's underlying earnings to rise 7.5 per cent to HK$24 billion, despite what is considered to be a tough global economic environment.

The 3G telecommunications operation should show marked improvement apart from the Australian operation. But the Australian operation is unlikely to turn around until the end of 2013, according to Credit Suisse.