First-half profits of Cheung Kong and Hutchison Whampoa are poised to rise more than sixfold to record highs, thanks to the huge exceptional selling of European telecommunication assets, according to analysts. Morgan Stanley expects Hutchison's net income to exceed HK$44 billion in Thursday's interim results, six times more than the last interim figure of HK$7.3 billion. Telecom-related transactions account for all exceptional profits. The Hong Kong-based conglomerate, which withdrew from a joint venture that won a German third-generation (3G) mobile licence last week, will record a total of HK$51.6 billion profit from selling its 10.2 per cent stake in German's Mannesmann to Vodafone AirTouch and a subsequent disposal of a 1.6 per cent stake in Britain's largest telecom company. Analysts expect Hutchison to take advantage of the huge exceptionals to mark down its holding cost for the remaining 3.5 per cent Vodafone stake. Carl Wong, HSBC analyst, predicted that Hutchison would provide HK$20.5 billion in Vodafone to reflect the present market price. Vodafone shares fell to GBP2.67 on Friday on concern that its wholly owned subsidiary, Mannesmann, paid too high a price for its German 3G mobile licence. The counter has fallen 9.2 per cent since the auction began. HSBC estimates Hutchison will make a half-year profit of HK$40.2 billion. Operating profit of Hutchison is also expected to register strong growth, despite being over-shadowed by exceptional items. Morgan Stanley predicts double-digit growth for its ports business (in Hong Kong, the mainland and Britain) and a more than doubled contribution from Canada's Husky Oil, to drive the underlying growth of the conglomerate. Analysts estimate the interim profit at Cheung Kong (Holdings) at HK$31 billion to HK$33 billion, with about 90 per cent coming from its 49.9 per cent-owned Hutchison Whampoa, representing a sixfold increase from the HK$4.9 billion recorded last interim. They said the estimate did not take into account Hutchison Whampoa's possible provision of more than HK$10 billion against the cost of its stake in Vodafone. 'Assuming that the provision amounts to between HK$10 billion and HK$12 billion, the net profit of Cheung Kong will be HK$5 billion to HK$6 billion smaller,' said BNP Peregrine analyst Terry Ip. Stripping out the contribution from Hutchison, Cheung Kong's core operation - property development - is expected to achieve an improvement in the first half due to increased property-project completions. Major profits came from various projects, including the third phase of Laguna Verde development in Hunghom and Manhattan Heights in Western. Together with income from treasury investments, analysts estimate Cheung Kong's operating profit at about HK$3 billion. Jonas Kan Kwok-yu, equity research director of Daiwa Institute of Research, expects Cheung Kong to report a smaller treasury income in the first half, as most of the gains from shares in China Mobile were reflected last year. Mr Kan is optimistic about the outlook for Cheung Kong in view of its increasing property portfolio size. 'It seems that the property market is better right now when compared with the past months.' Mr Kan said any improvement in the property market would be good for Cheung Kong as the size of property completion was expected to grow in the next two years.
