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Hong Kong company reporting season

Li Ka-shing’s CK Hutchison posts higher-than-expected 2pc interim profit growth

Firm says Brexit ‘will bring with it considerable challenge both for the UK and for Europe, for at least the next two to three years’

PUBLISHED : Thursday, 11 August, 2016, 5:58pm
UPDATED : Thursday, 11 August, 2016, 11:02pm

CK Hutchison, the flagship company of Asia’s second-richest man, its chairman Li Ka-shing, has reported a better-than-expected 2 per cent rise in first-half profit, driven by earnings from its infrastructure and telecommunications businesses.

Net profit before profits on disposal of investments and other non-recurring items rose to HK$15.23 billion for the year’s first six months, but it said its income from ports, retail shops and oil and gas operations has struggled.

When the business’s non-recurring items are taken into account, net profit was HK$14.92 billion, 2.7 per cent higher than the HK$14.88 billion average estimate of two analysts.

Turnover fell 8 per cent to HK$180.51 billion, while earnings per share rose 3 per cent to HK$3.87.

The Hong Kong-based company will pay an interim dividend of 73.5 HK cents, 5 per cent higher than 70 HK cents last year.

For the full year, analysts polled by Reuters are now expecting a net profit of HK$31.1 billion, compared to HK$32.1 billion in 2015 if a huge one-time accounting gain from a restructuring is excluded.

“The withdrawal of the UK from the European Union will bring with it considerable challenge both for the UK and for Europe, for at least the next two to three years,” the company said in its interim filing to the Hong Kong bourse, after the stock market closed.

“Despite the current economic environment, the group’s current businesses both in the UK and in Europe – predominantly resilient operations relating to utilities and daily necessities with solid fundamentals – are expected to continue to generate stable and reasonable returns.”

JP Morgan’s head of Hong Kong research Cusson Leung said in a note ahead of the results that notwithstanding the uncertain economic outlook after the vote for Britain to exit the EU, CK Hutchison will unlikely shy away from further investments there provided the opportunities are at “reasonable valuations”.

Earnings before interests and tax (EBIT) from infrastructure projects,the conglomerate’s biggest earner, rose 3 per cent to HK$12.29 billion during the first half, thanks to a higher contribution by the company’s UK-based railway rolling stock operations acquired last year. In local currency terms, EBIT grew 8 per cent.

Much of its infrastructure projects are located in Britain, whose currency has depreciated 6.7 per cent year-on-year in the first half, on concern of the referendum to exit the European Union.

EBIT from the 3 Group telecommunications business, mainly in the UK and Italy, rose 10 per cent to HK$5.41 bilion. It grew 13 per cent in local currency terms.

The company also owns one of the world’s largest operators of container harbours, Hutchison Port Holdings. Its ports management business earned HK$3.72 billion, a 9 per cent decline caused by the global slump in sea-bound trade as well as the company’s reduction of a stake in Jakarta’s port. In local currency terms, ebit fell 4 per cent.

CK Hutchison’s retail business, mainly around its Watsons and Park’n’Shop outlets, contributed HK$5.34 billion to EBIT, 2 per cent lower than last year. In local currency terms, earnings grew 2 per cent.

The group’s energy unit, Canada’s oil and gas producer Husky Energy, contributed a first-half EBIT of HK$612 million, down 40 per cent year-on-year due to weaker energy prices.

Shares of CK Hutchison have fallen almost 16 per cent in the past year. They fell 0.7 per cent on Thursday to close at HK$93.25 before the company announced its results.