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: Anita Hwang 23 rd March 2007 HUTCHISON WHAMPOA LIMITED ( 和記黃埔 ) Sector : Conglomerates Chairman : Dr LI Ka-shing HKSE Code : 0013 Market Price : HK$75.40 (22/03/2007) Managing Director : Canning FOK Kin-ning HSI : 19, (22/03/2007) Shares Issued : million Market Cap. : HK$321,458 million 52-week Hi / Lo : HK$83.00 / HK$68.00 SUMMARY OF THE FINAL RESULTS FOR THE YEAR ENDED 31 ST DECEMBER 2006 Final Results Highlights FY2006 FY2005 HK$ million HK$ million Change Turnover (including share of associates and jointly controlled entities) 267, , % Change in fair value of investment properties 2,843 3, % Profit on disposal of investments and others 23,290 25, % Earnings before interest and taxation (EBIT) 50,887 32, % Interest and other finance costs (16,601) (15,405) 7.8% Profit attributable to shareholders 20,030 14, % EPS (HK$) % Final DPS (HK$) Unchanged Total DPS (HK$) Unchanged Hutchison Whampoa ( HWL ) reported a 39.7% y-o-y rise in net profit to HK$20.03 billion for the year ended 31/12/2006, due to strength in its ports and energy businesses and narrowing of losses in its 3G telecom operations. The results were in-line with consensus estimates. Turnover (including share of associates and jointly controlled entities) increased 10.7% y-o-y to HK$ billion, benefiting from solid growth in the established businesses, particularly in Husky Energy and a significant jump in contribution from the 3 Group (3G business in Europe and Australia). Profit on disposal of investments and others amounted to HK$23.29 billion, comprising : (i) a HK$24.38 billion profit on partial disposal of 20% equity interest in Hutchison Port Holdings and Hutchison Ports Investments; (ii) The CDMA network closure costs of HK$1.84 billion relate to the closure in August 2006 of the Group's 2G CDMA services in Australia and the costs to migrate the 2G customers to the 3G network; (iii) profit on sale of 3 UK data centres of HK$751 million. As of 31/12/2006, total debt amounted to HK$ billion (31/12/2005: HK$ billion), while cash and liquid investments on hand totalled HK$ billion (31/12/2005: HK$ billion). The net debt-to-net total capital ratio was 33% (31/12/2005: 36%). EPS was HK$4.70 (FY2005: HK$3.36). A final DPS of HK$1.22 was declared, bringing the full-year DPS to HK$1.73 per share, the same as in FY2005. Payout ratio was 36.8% (FY2005: 51.5%). This report has been prepared solely for information purposes and we 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. The information is based upon information which we consider reliable, but accuracy or completeness is not guaranteed. Opinions expressed herein are subject to change without notice. At time of this report, East Asia Securities Company Limited has no position in securities of the company or companies mentioned herein, while its group companies may from time to time have interests in securities of the company or companies mentioned herein.

2 Breakdown of turnover by business segments: FY2006 FY2005 HK$ million % HK$ million % Change Ports and related services 33, , % Property and hotels 10, , % Retail 99, , % Cheung Kong Infrastructure 14, , % Husky Energy 29, , % Finance, investments and others 12, , % Hutchison Telecommunications International 16, , % Sub-total (established businesses) 216, , % Telecommunications 3 Group 50, , % Total 267, , % Breakdown of EBIT/(LBIT) by business segments: FY2006 FY2005 HK$ million % HK$ million % Change Ports and related services 11, , % Property and hotels 5, , % Retail 2, , % Cheung Kong Infrastructure 6, , % Husky Energy 8, , % Finance, investments and others 6, , % Hutchison Telecommunications International 2, , % Sub-total (established businesses) 43, , % Telecommunications - 3 Group (19,996) (36,280) -44.9% Change in fair value of investment prop 3,802 5, % Profit on disposal of investments & others 23,290 25, % Total 50,887 32, % Revenue from ports and related services grew 10.4% y-o-y to HK$33.04 billion, thanks to robust global trade. The combined container throughput increased 15% y-o-y to 59.3 million TEUs, with particularly strong growth at ports in Shenzhen s Yantian and the Shanghai area. EBIT of the segment rose by 11.5% y-o-y to HK$11.40 billion, accounting for 26% of total profit contribution from the HWL s established businesses. Revenue from the property and hotels division increased 4.4% y-o-y to HK$10.72 billion, while EBIT improved 43.9% y-o-y to HK$5.67 billion. Gross rental income was buoyant at HK$ 2.81 billion, up 11% y-o-y, attributable to increased rental income from investment properties in Hong Kong especially in the office segment. Development profits came primarily from the sale of residential units of Cairnhill Crest in Singapore, Shanghai Regency Park, The Greenwich in Beijing and Cape Coral in Guangzhou. The Group s hotel operations reported EBIT 33% better than last year primarily due to increased demand in Hong Kong. The retail division reported a turnover growth of 11.7% y-o-y to HK$99.15 billion on full-year contributions from Marionnaud Parfumeries in France and The Perfume Shop in the UK. However, EBIT of the segment was down 16.6% y-o-y to HK$2.72 billion. The decline was due to restructuring charges incurred by Marionnaud and the UK and Benelux health and beauty businesses, but was offset by improved results from PARKnSHOP, Watsons and Fortress operations in HK. 2

3 Cheung Kong Infrastructure contributed 5.5% and 14% respectively to the HWL s turnover and established-businesses EBIT. CKI posted a net profit of HK$3.67 billion for FY2006, down 39% y-oy. The decline was due to a one-time profit of HK$3,699 million on partial disposal of the Australian electricity distribution businesses as well as provisions totalling HK$1,727 million in FY2005. HWL s 35%-owned Husky Energy reported a 35.5% y-o-y surge in FY2006 net profit to C$2.73 billion on turnover of C$12.66 billion, driven by higher crude oil prices, increased production volume and full-year contribution from the White Rose oil field. Husky contributed 11.2% and 19% respectively to the HWL s turnover and established-businesses EBIT. EBIT from Finance and investments, which represents returns on cash and liquid investments, totalled HK$6.92 billion, up 25.5% y-o-y, mainly due to profits on disposal of certain equity investments and a dilution gain of HK$307 million realised on the IPO of Hutchison China MediTech on the London Stock Exchange. This segment constituted 15.8% of total EBIT contribution from the HWL s established businesses. Its 2G telecom business Hutchison Telecommunications International (HTIL) contributed 6.2% and 6% respectively to the HWL s turnover and established-businesses EBIT. HTIL s FY06 turnover was HK$33,378 million, a 37% y-o-y increase and attributable profit of HK$201 million, compared to a loss of HK$768 million in The improvement was mainly due to the improved EBIT contributions from the mobile operations in India, Partner Communications in Israel and in Hong Kong, partially offset by start-up losses in the Vietnam and Indonesia businesses. 3 Group reported a 35.1% y-o-y increase in turnover to HK$50.67 billion, due to successful strategy of capturing higher-value contract customers, which accounted for 45% of the total customers in 2006 (2005: 40%). Registered 3G customers increased 30% y-o-y to over 14.7 million. Average revenue per user (ARPU) was for 2006, an 8% y-o-y increase from for Unit average customer acquisition costs (CAC) dropped to 250 from 293 in FY2005. The value of customers acquired was higher as the proportion of contract customers increased to 45%, versus 40% in FY2005. Average monthly customer churn rate decreased from 3.2% in 1H06 to 2.6% in 2H06 and averaged 2.9% for the full year. Overall, Loss before interest and taxation (LBIT) from the 3 Group narrowed to HK$ billion from HK$36.28 billion in FY2005, 45% contraction y-o-y. HK, Australia, and Italy were the best performers among 3 Group. Outlook & Prospect 3 G EBIT break-even is on the horizon supported by encouraging KPI HWL previously targeted to achieve EBITDA (post CAC) breakeven in 2006 but has delayed the target to 2007 due to suboptimal performance of 3 UK that dragged down the overall performance of 3 Group. 3 UK s strategy of targeting higher-value customers resulted in significantly lower customer churn in early The whole 3 Group targets to achieve positive monthly EBITDA (post CAC) on a sustainable basis during 1H07 and positive monthly EBIT during Positive monthly EBITDA (post CAC) was recorded in the first 3 months of Italia and Australia are already EBITDA positive. The EBITDA breakeven is achievable on the back of these initial results. Optimistic on Husky Energy Despite some weakening in the crude oil price, the oil price is likely to stay at high levels on tight demand supply and geopolitical uncertainties. We see Husky remains a major driver for core operating earnings growth. Some of the latest key developments of Husky Energy include: o In the South China Sea, Husky made a significant hydrocarbon discovery at Liwan on Block 29/26. This discovery contains contingent resource of 4-6 trillion cubic feet of natural gas, making it one of the largest discoveries offshore China. A major seismic program is planned for 2007 over Block 29/26 and the adjacent Block 29/06. o Canada s East Coast White Rose project: During 4Q06, a 6 th production well was brought on stream, increasing reservoir production capacity to 125,000 barrels of oil per day. A 7 th well will be completed by mid o The Tucker Oil Sands project achieved its first oil at the end of 2006 on schedule. Tucker will ramp up production over the next 2 years to maximum 30 million barrels per day of bitumen. 3

4 Expanding the port operations Construction is progressing to expand the facilities in various ports with better operating environment and high-growth like Yantian and Thailand. In February 2007, the Group entered into agreements with Saigon Investment Construction & Commerce Company to jointly build and operate a new container terminal in Vietnam for a period of 50 years. This three-berth terminal is expected to commence operation in Property development business expanding on the Mainland HWL and its sister firm Cheung Kong (Holdings) have been aggressively expanding their joint portfolio of development properties on the Mainland and abroad. HWL s current attributable share of land bank is 92 million sq. ft., mainly comprising residential property, of which 96% is in the PRC. The sale of Hutchison Essar by HTIL Total proceeds from the sale of HTIL s stake in Hutchison Essar (HE) were about US$11.1 billion. After the special dividends (HK$6.75/ share of HTIL), which account for some US$4.11 billion, up to US$1.8 billion will be used to reduce indebtedness. HTIL plans to retain about US$5 billion for existing operations and new opportunities. With 49.8% stake in HTIL, HWL can receive a one-off gain of about US$2.05 billion from the sale of HE. HTIL has been accounting for about 8% of HWL s net asset value, so the real driver for Hutchison still hinges on the performance of 3G. This one-off gain from sale of assets can help narrow the profit gap as 3G is not expected to EBIT breakeven before FY08. Improved business strength offers value The counter is trading at about FY07E 12X PER, 22% discount to its FY07E NAV of HK$97 (average historic discount is 10%). We believe the current valuation partially factored the improving operational outlook for HWL and therefore any dip in share price represents a buying opportunity. Recommendation: Accumulate on weakness (but prefer Cheung Kong) 4

5 Important Disclosure / Analyst Certification / Disclaimer This document is published by East Asia Securities Company Limited, a wholly-owned subsidiary of The Bank of East Asia, Limited (BEA). The research analyst primarily responsible for the content of this report, in part or in whole certifies that the views on the companies and their securities mentioned in this report accurately reflect his/her personal views. The analyst also certifies that 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. The information is based upon information, which East Asia Securities Company Limited considers reliable, but accuracy or completeness is not guaranteed. Information and opinions expressed herein reflect a judgment as of the date of this document and 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 addressee. This report is not to be taken in substitution for the exercise of judgment by respective readers of this report, who should obtain separate legal or financial advice. East Asia Securities Company Limited and / or The BEA Group accepts no liability whatsoever for any direct or consequential loss arising from any use of this report or further communication given in relation to this report. At time of this report, East Asia Securities Company Limited has no position in securities of the company or companies mentioned herein the report, while BEA along with its affiliates 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 associates, its 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 may beneficially own a total of 1% or more of any class of common equity securities of the subject 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 subject company or companies mentioned in the report. This document 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