EUR 850.00 For Business Accounts Only

Morningstar | CKH Faces Continued Competitive Pressure in Key Telecommunications Markets

CK Hutchison Holdings should see relatively stable but slow organic growth in its core businesses: ports services, telecommunications services, infrastructure activities, and retail operations. Profit may be damped by foreign exchange headwinds that result in lower translated Hong Kong dollar-denominated income. Contributions from oil and gas associate Husky Energy could be volatile, but we think the worst is over, with Husky having resumed its dividend payouts. Inclusive of net acquisitions, free cash flow should be healthy at HKD 14 billion-43 billion. Acquisitions will remain the main driver of earnings growth, particularly for the infrastructure and telecommunications divisions. CKH’s infrastructure subsidiary, CK Infrastructure Holdings, still has room to acquire assets with relatively comfortable net gearing. For its telecommunications business, the purchase of the balance of the 50% stake in Wind Tre in 2018 will boost 3 Group’s cash flow, but we see few sizeable acquisition opportunities for the group going forward, given regulatory headwinds. This also means continued competitive pressure in its key telecommunications markets and is a key reason for our no-moat rating for CKH. The retail arm’s A.S. Watson Group is starting to see growth pick up, driven by a revamp of its store experience and a greater e-commerce and digital presence. We think that if the retail segment can sustain high-single-digit growth in income over the next few years, this could be a catalyst to lift share price performance, assuming other activities are stable.Ports revenue growth is likely to lag the rest of the group in the next few years. CKH has been adept at shutting down inefficient berths or converting them to accommodate larger vessels. Hence, cost cuts have helped mitigate the slide in revenue.