Hutchison Whampoa

All eyes will be on AS Watson spin-off plans when Hutchison reports results

PUBLISHED : Wednesday, 26 February, 2014, 10:57am
UPDATED : Wednesday, 26 February, 2014, 10:57am

In the absence of sizeable mergers and acquisitions last year, Hutchison Whampoa’s annual results announcement on Friday is likely to be uneventful, with much of the attention focused on a plan to spin off its retailing business, AS Watson, which analysts said could spur earnings this year.

Most analysts forecast that the telecoms-to-retail conglomerate will report net profit of a little over HK$30 billion for last year, up about 11 per cent year on year.

Standard Chartered tips HK$30.5 billion, UBS HK$30.4 billion and Morgan Stanley HK$31.1 billion, while Credit Suisse’s prediction is HK$29.8 billion.

Analysts say profit drivers for last year would be H3G – the company’s third-generation telecoms service in Europe – its mainland properties arm and its retailing business.

Meanwhile, earnings would be dragged down by its port business, Canadian Husky Energy and Hutchison Telecommunications Hong Kong.

H3G was boosted by the acquisition of Orange Austria, as a result of which the division’s earnings before tax and interest (ebit) grew 50 per cent year on year, Morgan Stanley said in a report.

Property sales on the mainland helped to increase the ebit of its property division by 25 per cent, the report said.

After seven years of investment outpacing disposals, we believe Hutchison is on the verge of a large asset monetisation programme
Credit Suisse

The conglomerate is scheduled to host a press conference on Friday, after skipping one at its interim results announcement last year.

Analysts will be pressing management for updates about a plan to spin off AS Watson, which operates 11,400 stores in Hong Kong, on the mainland and in Southeast Asia and Europe.

“After seven years of investment outpacing disposals, we believe Hutchison is on the verge of a large asset monetisation programme,” Credit Suisse said in a report.

It estimated that some US$25 billion worth of hidden value was embedded in Hutchison’s unlisted assets, with AS Watson accounting for 72 per cent of that.

It said Hutchison’s investments had outpaced its disposals of assets by a ratio of 1.5:1 over the past seven years and that had weighed on the valuation of the company –- which traded at an average 31 per cent to its net asset value (NAV) over the period.

The historical discount to NAV was 7 per cent over the preceding 10 years, when investment and disposals were in equilibrium, the report said.

“So 2014 will be the year when the company commences unlocking this value and will drive a material or entire narrowing of the current 36 per discount to NAV,” the report said.