THREE years after Wharf (Holdings) underwent a repositioning exercise aimed at diversifying the group's core businesses, executive director John Hung believes things are on the up once more. The completion of Gateway II in Tsim Sha Tsui would double the group's retail space, unexpected cost savings resulting in an impending operational break-even in its cable television business promised quicker returns, and Modern Terminal's (MTL) expanded operations had delivered a 'significant' increase in ports business, Mr Hung said. Mr Hung believes that after a few years in the wilderness, Wharf will soon be back in form. From this year onwards, the company should see the kind of upsurge in its share price it experienced in the early 1990s, he said. Mr Hung said the massive capital outlays required to launch the group's telecommunications ventures had caused the poor performance of the company's share price in the past two years. In 1991, the stock was considered a laggard, trading at $6, but was propelled over the $40 mark in 1994, following a vigorous investor relations exercise. Today, directors believe the stock is still lagging, trading at about $12. 'The earnings lag was inevitable because we were pouring money into big-scale capital investments. We also knocked down revenue-earning buildings,' Mr Hung said. 'From 1998 onwards, we should see an upsurge like we saw in the early 1990s.' Galaxia, the Diamond Hill residential property development in which Wharf is in partnership with Wheelock, is now 50 per cent sold and all development costs have been covered. Mr Hung said he was confident the remaining units, numbering about 800, could be sold before the end of this year, the remainder of the sales generating the 'cream'. About 80 per cent of Wharf's business is in property. The Gateway II project, comprising a gross floor area of 2.7 million square feet of retail/office and service apartments, would make money this year, and eventually contribute significantly to the group's earnings, he said. With the opening of the retail space in Gateway II in July, Wharf will double its total retail space under management. To date, the company has secured commitment for about 50 per cent of the shopping mall. Mr Hung played down complaints against the company by retailers in the Hongkong Hotel shopping complex earlier this year, saying they were in the minority. 'We would be sympathetic when rent renewals come up but in the middle of a tenancy, you have to consider the sanctity of contract and the rule of law,' he said. Retailers in the hotel were reliant on tourist traffic, while those in the adjoining Harbour City complex were 80 per cent reliant on local shoppers. When Gateway II is completed - two of the three towers will open in the middle of next year - Wharf will control some of the limited prime office space in Tsim Sha Tsui. Mr Hung is confident the take-up rate would be high, given that there was very little grade A office space on the waterfront or elsewhere in Tsim Sha Tsui. Another advantage was that Kowloon did not compete with Hong Kong Island properties for financial-services tenants. Most of the tenants in Kowloon were trading companies. Mr Hung said Wharf's rental renewals were spread over a three-year time horizon. This year, about 18 per cent of retail and 24 per cent of office tenancies are up for renewal. Some 45 per cent of this year's renewals have already been negotiated by the end of March, being carried out six months in advance. 'We have a huge waiting list so if we have any vacancies, we can fill them,' he said. The company also had a land bank of 200,000 square feet on the Peak, probably the most valuable residential land bank, per square foot, anywhere in the world, Mr Hung said. The group's Wharf Cable broke even operationally in February after the company sank more than $6 billion into the venture, Mr Hung said. The churn rate has dropped to just 1 per cent, against an international norm of about 3 per cent and the business will hopefully break even in terms of cash flow next year. 'We said we would need 450,000 subscribers to break even operationally but we found we could break even at just 400,000 subscribers.' Mr Hung said this had been made possible by building the network faster than was expected and cutting the number of engineering and sales personnel. Revenue from pay-per-view and the impact of earnings on advertising revenue had also been underestimated, he said. Mr Hung said that although the company recently denied a report it was to sell a stake in Wharf Cable, he could not rule this out at the right price at some point in the future. Now that Wharf Cable is on the path to profitability, Mr Hung describes the business as 'a warrant on the stock'. By 2001, Wharf's Modern Terminals would own 50.8 per cent of seven berths in Hong Kong, another side of the business Mr Hung expects to shine. In 1996 MTL lost its contract with Hyundai, but now has business with Nedlloyd, MISC and OOCL. The company expected to handle 500,000 20-ft equivalent units this year and had seen a 'substantial' rise in berthings in the first quarter, Mr Hung said. 'Amongst the doom and gloom, the only bright spot has been the trading volumes from the Hong Kong-China relationship,' he said. 'This has been rising into the high teens in recent months.'