CK Hutchison Reports Strong Ports and Non-China Retail, but Weak Telecom

CK Hutchison’s 00001 2022 result was solid at a consolidated level, with reported revenue increasing by 3%, net profit increasing by 10% and the dividend up 10% to HKD 2.93. After accounting for one-offs (mainly asset sales and impairment charges) underlying EBITDA was flat in reported currency terms and up 7% in local currency terms. Telecom was again the key disappointing segment, but this was largely offset by strength in ports and retail outside of China. As such, we nudged our fair value estimate down to HKD 74 from HKD 75. CKH remains relatively attractive as a value play but its telco segment struggles are an overhang in the absence of further consolidation in Europe. Nonetheless, CKH’s share price should find support as it trades on an attractive dividend yield of over 5% currently, coupled with an active share buyback policy.

CK Hutchison Group Telecom, or CKHGT, reported 9% underlying decline in EBITDA, with a further 9% decline from foreign currency translation. The weakness in the largest market in Italy overwhelmed the solid performance in other markets such as the U.K., Austria and Sweden, which all saw EBITDA increases. Incremental tower service fees due the tower asset sales contributed to the fall in in operating profit, as did rising energy costs and inflationary pressure on wages. Iliad building out its own network continues to reduce wholesale revenue in Italy. Potential in-market consolidation in Sweden, the U.K. and Denmark remains the key to significant improvement in European telecom returns, and CKH has been in talks with competitors in all three markets. Uncertainty about regulatory approval of any mergers means we do not include any of these benefits in our forecasts. We forecast a 3.3% increase in CKHGT EBITDA in 2023.