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Sandy Li

Cheung Kong (Holdings) could generate up to HK$2 billion in exceptional profits from the proposed spin-off of its biotechnology division on the Growth Enterprise Market.

Goldman Sachs said its projection was based on the estimated HK$7.8 billion valuation of CK Life Sciences International (CKLS).

The report said if the valuation climbed as high as HK$15.8 billion, it would bring in HK$7 billion to HK$8 billion in exceptional profit to Cheung Kong.

For each US$1 billion in capitalisation gained by CKLS, Cheung Kong would reap HK$1.52 in net asset value per share.

The estimate was based on an assumption that the developer's stake in CKLS would be diluted to 45 per cent from its present 60 per cent after the listing.

Li Ka-shing's private company holds the remaining 40 per cent in CKLS.

The management said the proposed listing was likely to take place in the third quarter, Goldman Sachs said.

'While news of the spin-off did not come as a surprise to the market, very little information has been given, and the bio-tech business is a new business for Cheung Kong, so valuation has been extremely difficult,' it said.

A market source said the valuation of CKLS would be between HK$11 billion and HK$12 billion, even though it had yet to generate any profits.

'Not making money does not mean a company is worth nothing,' the source said.

Many listed biotechnology companies in the United States, which had no earnings at the start-up stage, had achieved attractive valuations after developing breakthrough technologies, the source said.

Nestor Lai, biotechnology analyst at Core Pacific-Yamaichi International (HK), said one measurement of a biotech company's valuation was based on profit projection from the sale of intellectual property patents.

So far, Cheung Kong had released details of only the first product to be patented, NutriSmart fertilisers. The fertilisers would be distributed to farmers in five countries.

He believed Mr Li's goodwill, to some extent, would help boost the company's valuation.

Goldman Sachs quoted CKLS management as saying: 'There are already sales in several countries, mostly of fertilisers.'

It estimated CKLS had invested about US$200 million to US$300 million, mostly in the form of plant facilities and equipment, as well as in operating expenses since inception.

CKLS products cover five areas - eco-agriculture, bioremediation, pharmaceuticals, nutraceuticals and dermatologicals.

It has about 100 products in the early trial stage.



Cheung Kong to gain from biotech spinoff