Hong Kong company reporting season

Billionaire Li Ka-shing’s flagships tipped to post steady to slightly higher half-yearly profits

CK Hutchison and C K Property fare well despite weakness in ports, retail and energy businesses

PUBLISHED : Sunday, 07 August, 2016, 2:29pm
UPDATED : Sunday, 07 August, 2016, 7:13pm

Billionaire Li Ka-shing’s listed flagship CK Hutchison is expected to post flat interim profit on Thursday, despite the weak British currency, which accounted for 37 per cent of its profits last year.

Higher earnings from infrastructure and telecommunications segments would help offset lower returns from the ports, retail and energy businesses, analysts said.

“We expect earnings to stay largely flat year-on-year, at HK$14.75 billion, versus HK$14.94 billion [in the year ago period], despite a 6 per cent decline in the British pound,” said Cusson Leung, head of conglomerates and property research at JP Morgan.

“CK Hutchison has underperformed the market by about 4 per cent since [Britain voted late June to leave the European Union], on fears that its pound exposure will pressure earnings. We believe the market is going to be surprised by the resilience of its earnings.”

For the full year, 13 analysts polled by Thomson Reuters have forecast a net profit of HK$31.1 billion, compared to underlying profit of HK$32.1 billion last year after excluding one-off restructuring gains.

Li Ka-shing’s Hutchison still eyes British mobile network expansion amid Brexit uncertainty

Leung projected first-half profit before interest and taxes of CK Hutchison’s port business to have dropped 7 per cent to HK$3.84 billion on the back of a 5 per cent fall in its global port throughput, and stake reduction at its Jakarta port.

Profit at its retail business is forecast to have dropped 2 per cent year-on-year to HK$5.34 billion, although moderate growth was expected in local currency terms when the pound’s depreciation factor was excluded.

Recap: Li Ka-shing’s CK Hutchison and CK Property top annual profit estimates

Telecommunications is expected to be the group’s bright spot, with pre-tax and interests profit expected to have risen 10 per cent to HK$5.4 billion at its 3 Group Europe unit, primarily on better performance in Britain and Italy. Hutchison Asia Telecommunications is tipped to have delivered a 19 per cent pre-tax and interest profit growth to HK$1.43 billion.

Infrastructure, the group’s biggest profit contributor, is estimated by Leung to have seen a 4 per cent pre-tax and interest profit growth to HK$12.52 billion despite the lower pound, thanks to full-period contribution from its rail rolling-stock and aircraft leasing business last year.

The group’s energy unit, Canada’s oil and gas producer Husky Energy, posted a first-half net loss of C$549 million when non-recurring items are excluded.

But Leung expects [it] to see a pre-tax and interest profit of HK$100 million, down 90 per cent year-on-year, thanks to an accounting gain from the lower book values of assets written down during CK Hutchison’s restructuring early last year.

Meanwhile, Cheung Kong Property Holdings (CK Property) is expected to announce, also on Thursday a single-digit percentage growth in core profit for the first half, thanks to the strong contribution from Hong Kong property sales, which helped offset the lower sales on the mainland.

Morgan Stanley expects the city’s second largest developer by market capitalisation to report underlying profit, excluding revaluation gains on investment properties, to grow by 6 per cent to HK$10.6 billion for the six months to June, compared with the same period last year.

“We estimate CKP’s Hong Kong development sales to almost double to HK$11 billion,” Praveen Choudhary, a property sector analyst at Morgan Stanley, said in a research note.

He attributed the higher sales to bookings for the The Beaumount II in Tseung Kwan O in May 2015 and for the Stars By The Harbour in Hung Hom.

The group owns 1.5 million square metres of investment properties including Cheung Kong Centre, Hutchison House and China Building in the city’s core business district, Central. It also owns a hotel and serviced suite portfolio of 16,000 rooms.

Contracted sales, or sales of partially constructed homes amounted to HK$3 billion in the first half, he said.

Under accounting rules, the company can book property sales only after a project is completed.

“We are concerned about the postponement of two key launches, namely the 228-unit Zumurud and 2,384-unit Tsuen Wan West TW5 project to late 2016 or early 2017,” he said.

Justin Chiu, executive director at CK Property said in June that the developer had achieved contract sales of HK$11 billion from property sales in Hong Kong and in the mainland.

“Nearly HK$8 billion come from the mainland, while the remaining was from Hong Kong,” said Chiu.

CK Property was listed on the main board on June 3, 2015 by way of introduction to mark the completion for the group’s reorganisation.

Li, the chairman of both Cheung Kong and Hutchison Whampoa, said last year that his two flagship companies’ non-property assets, including ports, telecommunications, retail, infrastructure and energy, would be injected into newly formed CK Hutchison Holdings, which was incorporated in the Cayman Islands.

Shares of CK Hutchison closed at HK$92.5 on Friday, just about recouping the losses sustained after Britain’s vote to exit the EU, but still 19 per cent below the year-ago level. CK Property closed at HK$55.1 on Friday, 21.3 per cent below its offer price of HK$70 when they were listed in June last year.