HUTCHISON WHAMPOA LIMITED ( 和記黃埔 )

Transcription

1 9/F, 10 Des Voeux Road Central, Hong Kong. Dealing: Research: Facsimile: HONG KONG RESEARCH Analyst: Carmen Wong 1 st August, 2014 HUTCHISON WHAMPOA LIMITED ( 和記黃埔 ) Sector : Conglomerates Chairman : Dr. LI Ka-shing HKSE Code : Market Price : HK$ (01/08/2014) Deputy Chairman : Mr LI Tzar Kuoi, Victor HSI : 24, (01/08/2014) Shares Issued : 4,263.4 million Market Cap. : HK$453,622.7 million 52-week Hi / Lo : HK$ / HK$81.46 SUMMARY OF THE INTERIM RESULTS FOR THE YEAR ENDED 30 TH JUNE 2014 Interim Results Highlights 1H14 1H13 y-o-y HK$ millions HK$ millions Changes Turnover (including share of associates and jointly controlled entities) 204, , % Property revaluation after tax 0 32 (100.0%) Profit on disposal of investments and others after tax 14, % Profit before property revaluation and disposal of investments 13,522 12, % Interest and other finance costs (3,904) (4,335) (9.9%) Profit attributable to shareholders 28,443 12, % HK$ HK$ Earnings per share % Dividend per share interim % Dividend per share special N/A Hutchison Whampoa ( HWL or the Group ) reported a 129.4% year-on-year increase in profit attributable to shareholders for the six months ended 30 th June Stripping out the after-tax profits of investment property revaluation and disposal gain of investments, underlying profit attributable to shareholders rose 12.6% year-on-year in 1H14, beating consensus estimates on stronger-than-expected results in all segments except its property business. Profits on disposal of investments and others of HK$14,921 million include the Group s share of the gain of HK$16,066 million arising from the separate listing of its Hong Kong electricity business, Power Assets Holdings Limited ( Power Assets ), which was partly offset by i) the provisions of HK$652 million on the impairment of goodwill, store closures of the Marionnaud businesses to exit Poland and down-size operations in Portugal and Spain as well as ii) an operating losses of HK$493 million for its 50% share of Vodafone Hutchison Australia ( VHA ). Earnings per share jumped 129.2% year-on-year to HK$6.67, against HK$2.91 in 1H13. Underlying earnings per share (excluding investment property revaluation gains and gains on disposal of investments) increased by 12.4% year-on-year to HK$3.17. This report has been prepared solely for information purposes and we, East Asia Securities Company Limited are not soliciting any action based upon it. Neither this document nor its contents shall be construed as an offer, invitation, advertisement, inducement or representation of any kind or form whatsoever. This document is based upon information, which we consider reliable, but accuracy and completeness are not guaranteed. Opinions expressed herein are subject to change without notice. At the time of preparing this report, we have no position in securities of the company or companies mentioned herein, while other Bank of East Asia Group companies may from time to time have interests in securities of the company or companies mentioned herein.

2 As at 30 th June 2014, the consolidated net debt was reduced from HK$117.7 billion a year ago to HK$ billion. Net debt to net total capital ratio declined to 17.7%, compared with 20.5% at the end of June HWL declared an interim dividend of HK$0.66 per share, an increase of 10.0% year-on-year. Payout ratio based on underlying earnings per share slightly declined from 21.3% in 1H13 to 20.8% in 1H14. Yet, the Group distributed special dividend of HK$7.00 per share, following its sales of 24.95% equity interest in A.S. Watson Holdings Limited to Temasek in April Breakdown of turnover by business segments: HK$ million 1H14 % 1H13 % y-o-y Change Ports and related services 17, % 16, % 2.2% Property and hotels 7, % 11, % (33.3%) Retail 77, % 71, % 8.6% Cheung Kong Infrastructure 22, % 20, % 10.6% Husky Energy 28, % 29, % (4.2%) Hutchison Telecommunications Hong Kong Holdings 6, % 6, % 1.3% Hutchison Asia Telecommunications 3, % 2, % 17.6% Finance and investments and others 10, % 10, % 1.6% 3 Group Europe 31, % 30, % 3.2% Total 204, % 199, % 2.7% Breakdown of EBITDA by business segments: HK$ million 1H14 % 1H13 % y-o-y Change Ports and related services 5, % 5, % 3.6% Property and hotels 3, % 5, % (34.6%) Retail 6, % 6, % 8.9% Cheung Kong Infrastructure 11, % 11, % 3.1% Husky Energy 8, % 7, % 1.9% Hutchison Telecommunications Hong Kong Holdings 1, % 1, % (18.5%) Hutchison Asia Telecommunications % (59) (0.1%) N/A Finance and investments and others 2, % % 159.4% 3 Group Europe 6, % 5, % 14.9% Reconciliation item 0 0.0% 0 0.0% N/A Total EBITDA before the following: 46, % 44, % 4.2% Profits on disposal of investments 20, % Non-controlling interests' share of # HPH Trusts EBITDA (3.8%) Total EBITDA 67,645 45, % (#): HPH Trust represents Hutchison Port Holdings Trust Revenue from ports and related services increased by 2.2% year-on-year to HK$17,270 million, as the total throughput rose 5% year-on-year to 39.6 million twenty-foot-equivalent units ( TUE ). EBITDA was up 3.6% against the same period last year, mainly due to the strong performances in the Europe, China and Hong Kong segments, which was partly offset by i) the effect of start-up losses of the Australian ports; ii) lower contributions from Mexico and Indonesia; as well as iii) a lower share of EBITDA in Malaysia with a reduced interest of HWL from 31.45% to 23.55% subsequent to the IPO of Westports Holdings Bhd. in October

3 Rental income of the property and hotels division grew 7% year-on-year. Yet, the revenue and EBITDA of the segment declined by 33.3% and 34.6% year-on-year respectively, dragged by lower property development sales and deferrals in the completion of development projects in China and Singapore to the second half of In 1H14, HWL recognized sales on attributable interest of approximately 1.7 million square feet (1H13: 3.4 million square feet) of developed projects, primarily in China. The retail division reported a turnover increase of 8.6% and EBITDA growth of 8.9%, as new store openings (+8% year-on-year to 10,812 stores) offset a slowdown of comparable store sales growth (+2.3% year-on-year in 1H14 versus +3.2% in 1H13) and a lower contribution from AS Watson following the reduced stake of the Group from 100% to 75.05% since April From geographical perspective, revenue from Asia (including China) and Europe grew 5% and 12% year-on-year respectively. In particular, health and beauty stores in China delivered an impressive same-store-sales growth of 4.3% in 1H14 from 1.4% in 1H13. Cheung Kong Infrastructure ( CKI ) reported a 3.1% year-on-year EIBITDA growth in 1H14, as the earnings growth from its UK operations and full 6-month contributions of the newly acquired operations (Enviro Waste Services Limited and AVRAfvalverwerking B.V.) were largely offset by the lower contribution from the Hong Kong electricity business, Power Assets, following its separate listing in January HWL s associated company, Husky Energy, reported a modest 1.9% growth in EBITDA, on the back of higher average prices of crude oil and natural gas and increased production. Average production in 1H14 was 329,800 barrels of oil equivalent per day, an increase of 4.5% year-on-year. Revenue of Hutchison Telecommunications Hong Kong ( HTHKH ) merely grew 1.3% year-onyear, while EBITDA was down 18.5% from a year earlier. The weak performance was primarily attributable to its mobile business, as a result of lower demand for new handset models and consumers being price-sensitive. Total active mobile customers in Hong Kong and Macau dropped from 3.78 million in 1H13 to 3.6 million in 1H14. Revenue of Hutchison Asia Telecommunications ( HAT ) surged by 17.6% year-on-year, with EBITDA of HK$502 million in 1H14 (vs. LBITDA of HK$59 million in 1H13). The turnaround was driven by strong business growth in Indonesia and Vietnam. Total number of active customers increased by 29.2% from a year ago to 46.5 million. 3 Group Europe showed a solid EBITDA growth of 14.9% year-on-year, thanks to better performances in the UK (+23% year-on-year), Austria (+29% year-on-year) and Sweden (+41% year-on-year) which were partially offset by a weaker performance in Italy (-46% year-on-year) amid the intense competition. Yet, average revenue per user ( ARPU ) of 3 Group Europe was down 7.1% year-on-year to Eur 20.8 in 1H14, dragged by lower ARPU in Italy (-17.4% year-onyear) and Denmark (-12.0% year-on-year). The results of the share of Vodafone Hutchison Australia ( VHA ) were reclassified as the Group s non-recurring operation, as the telecommunication business is undergoing one-off restructuring process. Its customer base declined 3% year-on-year to approximately 5.2 million amid stiff competition. 3

4 Outlook & Prospect Telecommunications: 3 Group Europe is expected to maintain strong growth in the second half, with the key drivers coming from i) continued improvements in the UK and Sweden; ii) the realisation of additional cost synergies following the acquisition of Orange Austria in 2013 and iii) a potential turnaround of its business in Italy, should the merger between 3 Italia (the fourth largest mobile telecom operator in Italy) and Wind (the third largest mobile telecom operator in Italy) realize. The Group completed the acquisition of O 2 Ireland in July Management guided this acquisition could bring a positive impact to its business in 2015 and lower its operating expenses by EUR100 million per year and capital expenditure by EUR15 million per year by In Italy, given the intense market competition which has led to price war, if the merger between the Group and Wind realizes, this will be a great boost to the business of 3 Italia by strengthening its market position and significant cost synergies. Port: The total number of operating berths is expected to reach 284 by the end of 2014, with a net increase of 2 berths in the second half. With cost efficiency, selective acquisition opportunities and the full operations of the new berths and ports which bring a higher volume growth, growth in this division is expected to accelerate modestly in the coming years. Retail: The Group expects to open approximately 650 stores in the second half, bringing the total number of stores to 11,462 by the end of The outlook for the health and beauty segment remains positive, given the upside potential for margin expansion by improving profitability in Asia and Western Europe and increasing private label sales. Nevertheless, HWL is expected to see a dilution in earnings contribution of AS Watson due to the sale of its 24.95% interest in AS Watson in April Property: Despite the better market sentiment following the easing of home purchase restrictions in Chinese cities recently and an accelerated completions of residential and commercial properties by the Group in the second half of 2014 (an expected 75.9% half-on-half increase to 5.1 million square feet GFA), its property sector may remain under pressure, as HWL decided not to be the price leader to cut prices. Instead, the Group intends to hold the inventory for better selling prices. Meanwhile, the Group will recognize HK$1.8 billion of profit in 2H14 from its disposal of Shanghai Oriental Financial Centre in July Energy: Husky Energy will continue to benefit from improved production of its two new mega projects this year, including Liwan deep-water natural gas development project in South China Sea and Sunrise Energy project in Canada. The first phase of Sunrise Energy project will commence its first production by end of 2014 and is expected to ramp up production capacity to 60,000 barrels per day over the next 18 to 24 months. The Liwan project achieved its first gas production in March 2014 and is expected to see increased sales in the coming months. Infrastructure: While growth of the division will continue to be driven by its organic growth, the Group will look for opportunities to expand its portfolio by acquiring businesses with strong recurrent returns. Valuation: HWL is currently trading at an undemanding valuation of 23.2% discount to 2014E NAV (versus long-term average of 15%). Despite the cautious view on its property business, we recommend Buy rating for HWL on the back of the recovery of global economy, potential inorganic growth of its telecommunication segment and strong balance sheet. Key downside risks include i) unfavourable changes in regulations of the telecom industry in Europe; ii) weaker-than-expected property rentals or prices; iii) volatility in oil prices and iv) deterioration of trade flows for its port operation. Recommendation: Buy 4

5 Important Disclosure / Analyst Declaration / Disclaimer This report is published by East Asia Securities Company Limited, a wholly-owned subsidiary of The Bank of East Asia, Limited ( BEA ). Each research analyst primarily responsible for the content of this report (whether in part or in whole) certifies that (i) the views on the companies and securities mentioned in this report accurately reflect his/her personal views; and (ii) no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report. This report has been prepared solely for information purposes and has no intention whatsoever to solicit any action based upon it. Neither this report nor its contents shall be construed as an offer, invitation, advertisement, inducement or representation of any kind or form whatsoever. This report is based upon information, which East Asia Securities Company Limited considers reliable, but accuracy or completeness is not guaranteed. The analysis or opinions expressed in this report only reflect the views of the relevant analyst as at the date of the release of this report which are subject to change without notice. Any recommendation contained in this report does not have regard to the specific investment objectives, financial situation and the particular needs of any specific recipient. This report should not be regarded by recipients as a substitute for the exercise of their own judgment. Investments involve risks and investors should exercise prudence in making their investment decisions and obtain separate legal or financial advice, if necessary. East Asia Securities Company Limited and / or The Bank of East Asia Group accepts no liability whatsoever for any direct or consequential loss arising from any use of or reliance on this report or further communication given in relation to this report. At the time of preparing this report, East Asia Securities Company Limited has no position in securities of the company or companies mentioned herein, while BEA along with its affiliates/associates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this report. BEA and its affiliates/associates, their directors, and/or employees may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies. BEA and/or any of its affiliates/associates may beneficially own a total of 1% or more of any class of common equity securities of the company or companies mentioned in this report and may, within the past 12 months, have received compensation and/or within the next 3 months seek to obtain compensation for investment banking services from the company or companies mentioned in the report. This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of, or located in, any locality, state, country or other jurisdiction, publication, availability or use would be contrary to law and regulation. 5