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Li Ka-shing's Hutchison Whampoa is expected to post a fall in interim earnings of between 30 and 40 per cent this week, according to analysts.

The decline would mask an underlying improvement in the conglomerate's core ports and telecommunications businesses, they said.

Five analysts polled from leading European and United States investment banks estimated that Hutchison would make between HK$4.3 billion and HK$5.1 billion, a significant drop from the interim period last year, when it reported a one-off exceptional net gain of HK$1.9 billion.

Hutchison's results are expected to contain few exceptional profit or loss items this year.

ING Financial analyst Cusson Leung said: 'Except for the energy and treasury divisions, Hutchison is expected to report growth in all major divisions.

'We do not expect Hutchison to produce any major negative surprise in the results.'

Port operations are expected to be the star performer. Group managing director Canning Fok Kin-ning hinted earlier that the division would post a 20 per cent increase in earnings before interest, tax, depreciation and amortisation.

Mr Leung said growth had been facilitated by an estimated 5 per cent rise at Kwai Chung, 56 per cent growth in Shenzhen, and the addition of international ports in the first half.

The group's telecoms business is also expected to show an improvement after losses were trimmed from its overseas listed operations Hutchison Telecom Australia and Partners Communications in Israel.

Dividend income of more than HK$500 million from its stakes in Europe's two largest telecoms operators, Vodafone and Deutsche Telekom, would help polish the division's results.

Provisions for the two minority shareholdings are not expected this year, despite a sharp correction in their share prices.

Hutchison will treat these shares as long-term investments, which means the change in values will not affect the group's profit and loss account.

No provision is expected to be taken against the holding cost of Hutchison's third-generation (3G) licences. The group is due to launch 3G services later this year.

'The key significance for the interims will be an update on the 3G roll-out,' Credit Suisse First Boston (CSFB) wrote in a research note to clients last week.

'Recent 3G announcements continue to suggest difficulties with a fourth-quarter roll-out, but Hutchison remains adamant that an effective roll-out is feasible.'

Hutchison shares have fallen almost 30 per cent in the year to date amid concerns on whether the company can make a success of the 3G business.

Market expectations are already low. Despite losing nearly HK$100 billion in market capitalisation this year, CSFB said the value-destroying potential of the 3G investments was not fully priced in.

The 3G investments are expected to push down the finance income of the company, once the group's most profitable division.

Treasury income is expected to suffer from a fall in interest rates and the utilisation of cash in the group's 3G ventures.

Deutsche Bank Securities said units that would see recurrent earnings drop included the energy and property divisions.

The retail division is expected to get a boost with the acquisition of Savers in Britain, and a turnaround in the Watsons' operations in Taiwan.



Hutchison to post thinner profits