AS Watson

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

Analysts forecast conglomerate will report 11pc net profit increase to HK$30 billion last year

PUBLISHED : Thursday, 27 February, 2014, 1:34am
UPDATED : Thursday, 27 February, 2014, 1:34am

In the absence of sizeable mergers and acquisitions last year, Hutchison Whampoa's annual results announcement tomorrow 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.

Analysts say the telecommunications-to-retail conglomerate will report net profit of about HK$30 billion for last year, up about 11 per cent on the year.

Standard Chartered is expecting a profit of 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 mobile service in Europe, as well as its mainland properties arm and 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, the result of which saw the division's earnings before tax and interest grow 50 per cent, 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.

Hutchison is scheduled to host a press conference tomorrow, after skipping one at its interim results announcement last year.

Analysts will be pressing the company for updates about a plan to spin off 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 US$25 billion worth of hidden value was embedded in Hutchison's unlisted assets, with Watson accounting for 72 per cent of that.

Credit Suisse said Hutchison's investments had outpaced its disposals of assets by a ratio of 1.5 to 1 over the past seven years and that had weighed on the valuation of the firm - which traded at an average 31 per cent discount to net asset value over the period.

The historical discount to net asset value 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 cent discount to [net asset value]," it said.