Hutchison Whampoa (HKG:13)

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Hutchison Whampoa, Limited (HKG:13), owned by Hong Kong tycoon Mr. Ka-shing Li, is an industrial conglomerate with retail, property, energy, infrastructure, and telecommunication operations in 57 countries. Hutchison operates businesses and has investment interests throughout Europe, Asia, and the Americas. Competitors to Hutchison Whampoa Ltd include rival conglomerates Swire Pacific Ltd and Wharf Holdings Ltd. The competitors to Hutchison's subsidiaries include port operators NYK and DP World, as well as telecommunications suppliers Telecom Italia (NYSE: TI) and China Mobile Limited.

Hutchison's retail divisions, in particular, are poised to benefit from improvements in the global economy and China's economic resilience. Hutchison benefits from the growing containerization of world trade; in particular, Europe-Asia container traffic experienced a 35% surge[1] in eastbound traffic to Asia in 2010.

While analysts expected the company to report six-month earnings (ending on June 30, 2010) below 10 billion Hong Kong dollars, the net income for the six months was 10.69 billion HK dollars.[2] On August 10, 2010, Mr. Li Ka-Shing made his largest purchase since January 2003: 5.9 million Hutchison shares at HK$59.35.[3] On August 11, 2010, Hutchison shares jumped 8% to a two-year high of HK$63.10 per share, surpassing a 0.31% rise in Hong Kong's Hang Seng Index.[4]

Company Overview

Business and Financial Metrics

Hutchison's revenue has increased steadily from 2000 to 2009, from HK$57,022 million to HK$208,808 million. Its dividends per share has remained at HK$1.73 per share from 2005 to 2009. Hutchison's revenues are split across its five core businesses, with the most revenue made in the retail division and the least revenue made in the property division.

While analysts expected the company to report six-month earnings (ending on June 30, 2010) below 10 billion Hong Kong dollars, the net income for the six months was 10.69 billion HK dollars. It surpassed expectations due to more income in its energy and port divisions and less loss in its telecommunications department.[5]

A figure of HWL's earnings and dividends per share over the years.
A figure of HWL's earnings and dividends per share over the years.[6]
Ten Year Summary of Revenue
Ten Year Summary of Revenue[7]
2009 Total Revenue by Segment (Segment; Revenue in HK$ millions; Percentage)
2009 Total Revenue by Segment (Segment; Revenue in HK$ millions; Percentage)[8]

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Key Trends and Forces

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State of the Hong Kong Economy Impacts Segments

  • Businesses, like Hutchison, that are centered in Hong Kong benefit from steps forward in Hong Kong's dominance as a center of Chinese currency. The Hong Kong Association of Banks reported that, in 2010, Hong Kong will receive approximately USD$14.70 billion in yuan-denominated bank deposits.[9] As of September 1, 2010, stronger manufacturing activity in China[10] has helped investors to overcome worries of a slowdown in global activity, increasing average share prices for conglomerates like Hutchison that own a large retail division.
  • The prices in the Hong Kong property investment market depend largely on the performance of the overall economy. The region's undergoing economic recovery, combined with record-low interest rates in the United States, has spurred demand across industries. For example, the government of Hong Kong auctioned off a luxury residential site in August 2010 for 26 percent more than analysts estimated; this is a sign that developers are confident home prices will withstand tighter mortgage rules and increased supply.[11] From 2009 to 2010, low mortgage rates and an influx of wealthy mainland Chinese buyers led home prices in Hong Kong to surge by 45%,[12] but this has also prompted a cautious Hong Kong government to take measures to prevent asset bubbles. Regarding the increased stamp duty effective April 2010, analysts suggest that property prices in Hong Kong will remain unaffected.[13]
  • Like Hutchison's port division, AS Watson is poised to benefit from improvements in the global economy and China's economic resilience. It has reduced costs by pressuring suppliers with Hutchison's large purchasing power, resulting in more profitable margins in the retail division going forward.[14] The firm has been expanding its high-end brand presence in China; in November 2009, AS Watson opened its 500th store in China. The retail franchise also has an ambitious expansion plan to open 10,000 stores by 2011, representing two new stores a day throughout the year.[15]

Competition

According to Goldman Sachs estimates, Hutchison's shares trade around 14.7 times expecting earnings in 2010 and 9.8 times expected earnings in 2011; Hutchison also trades at approximately a 40% discount to its net asset value.[16] These measures are cheaper than those of rival conglomerates Swire Pacific Ltd and Wharf Holdings Ltd. Swire Pacific Ltd, a major shareholder of Cathay Pacific Airways, is a London-based international conglomerate that, like Hutchison, invests in shipping businesses.[17] Wharf Holdings Ltd includes Wharf T&T Ltd, the second largest fixed-line provider in Hong Kong and telecom competitor to Hutchison Telecommunications International.

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Telecommunications

  • Telecom Italia (NYSE: TI) is the largest telecommunications company based in Italy; as such, it is the largest European competitor to Hutchison Telecommunications Holdings, the telecom arm of HWL that services several million European customers. Like Hutchison, Telecom Italia also offers landline and GSM mobile phone services.[18] Hutchison and Telecom Italia compete for customer base, customer care assets, and network coverage.
  • China Mobile Limited provides mobile voice and multimedia services through a nationwide mobile telecommunications network; it is the leading telecommunications company in China, with over 500 million customers.[19] China Mobile Limited's parent company is China Mobile Communications Corporation, a state-owned enterprise that holds 75% of CHL's shares. Investment by state-controlled companies in China has been driven by hundreds of billions of dollars in government spending; state lending to combat the financial crisis has centered on state enterprises, not private corporations like Hutchison.[20]

References

  1. Bruce Barnard, The Journal of Commerce (10 Mar, 2010). Asia-Europe Container Cargo Soars. Retrieved on 6 Sept, 2010.
  2. The Associated Press, The New York Times (22 Aug, 2010). World Business Briefing: Hutchison Profit. Retrieved on 5 Sept, 2010.
  3. Hanny Wan and Kana Nishizawa, Bloomberg (13 August, 2010). Hong Kong Stocks Fluctuate; Developers Retreat on Property Policy Report. Retrieved on 5 Sept, 2010.
  4. Reuters (11 August, 2010). Hutchison up 8% after directors buy shares. Retrieved on 5 Sept, 2010.
  5. The Associated Press, The New York Times (22 Aug, 2010). World Business Briefing: Hutchison Profit. Retrieved on 5 Sept, 2010.
  6. Hutchison Whampoa Ltd. Annual Reports. Retrieved on 7 Sept, 2010.
  7. Hutchison Whampoa Ltd. Annual Reports. Retrieved on 7 Sept, 2010.
  8. Hutchison Whampoa Ltd. Annual Reports. Retrieved on 7 Sept, 2010.
  9. 8 August, 2010. Hong Kong yuan deposits 'to hit 14.7 bln US dollars'. Retrieved on 5 Sept, 2010.
  10. Colin Ng, Wall Street Journal (1 Sept, 2010). Chinese Data Push Asian Shares Higher. Retrieved on 7 Sept, 2010.
  11. Kelvin Wong and Sophie Leung, Bloomberg (31 Aug, 2010). Hong Kong Land Sale Beats Estimates, Shows Developers Defy Property Curbs. Retrieved on 8 Sept, 2010.
  12. Centadata. Centa-City Leading Index. Retrieved on 6 Sept, 2010.
  13. Anna Kitanaka, Bloomberg Businessweek. Hong Kong Stamp Duty Effect Limited, Taifook Says. Retrieved on 6 Sept, 2010.
  14. Rick Carew, The New York Times (20 Jul, 2010). Hutchison Has Potential to be a Cash Cow. Retrieved on 6 Sept, 2010.
  15. China International Beauty Net. AS Watson opens 500th store in China, accelerates global expansion plan. Retrieved on 6 Sept, 2010.
  16. Rick Carew, The New York Times (20 Jul, 2010). Hutchison Has Potential to be a Cash Cow. Retrieved on 6 Sept, 2010.
  17. Wendy Leung, Bloomberg (25 May, 2010). Swire, Cathay Sell Hactl Stakes as Hong Kong Cargo Terminal Work Resumes. Retrieved on 7 Sept, 2010.
  18. Cellular News (21 Nov, 2008). 3 Italia Denies Report of 3G Network Break-Up. Retrieved on 6 Sept, 2010.
  19. Raymond Yu, Bloomberg Businessweek (5 Aug, 2009). Chinese Telecom: China Mobile Leads the Way. Retrieved on 6 Sept, 2010.
  20. Michael Wines, The New York Times (29 Aug, 2010). China Fortifies State Businesses to Fuel Growth. Retrieved on 6 Sept, 2010.
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