About a year ago Merrill Lynch said it was reinstating coverage of Hutchison Whampoa with a 'buy' recommendation and a price objective of $88, made up of $69 for the core operations and $19 for 3G. The broker saw signs of positive sentiment towards Hutchison's 3G operations, which was likely to be reinforced by strong company indicators. Free cash flow was expected to turn positive for Hutchison this year and the broker said the best time to buy was when Hutchison's investment cycle was bottoming out and its cash flow was rising. The expected cash flow improvements, driven by core operations and the potential disposal of assets, should result in the market focusing on the company's capital management. Apart from using its excess liquidity to retire higher-cost debt, Hutchison could improve the return on its stock by raising its dividend payout. The broker saw three risks for Hutchison: a price war in 3G operations; a dramatic slowdown in China's trade growth, which could hurt growth prospects for the container port; and a sharp rise in interest rates. The counter was trading at $72.75 at that time. Last March, Hutchison reported net profit of $16.12 billion for 2004 due to one-off gains of $19.18 billion offsetting operating losses of $37.49 billion at 3G telecoms arm 3. Swelling 3G losses were also offset by strong performances at ports and treasury operations. Cheung Kong (Holdings) posted a 42 per cent rise in net profit to $12.38 billion. Chairman Li Ka-shing said losses at the 3G arm had peaked. In August, Hutchison announced a 10 per cent rise in earnings to $11.82 billion for the first half of last year. Operating losses for 3G were $10.62 billion, down from $14.29 billion lost in the same period of 2004. This month, sources said Hutchison hoped to start the spin-off of its Italian 3G business soon and make its trading debut next month. The counter closed on Friday at $78.65.