1H15 proforma recurring profit up 3% y-o-y, with currencyheadwinds offset by a strong telecoms performance and asharply lower effective tax rate
Strong performances from Telecoms and Ports offset byweaker Husky. Performance and guidance as anticipated
Maintain Hold, lower TP to HKD110 (from HKD118) set at a20% discount to appraised valuation of HKD137/share
1H15 proforma recurring profit was HKD14.9bn, +3% y-o-y on a like for like basis and6% above our forecast of HKD14.1bn. Within the pro forma recurring net profit wasadditional contributions from new businesses of HKD1.4bn and accounting adjustmentsas a result of the Cheung Kong Group reorganization of HKD3.1bn. Stripping these lattertwo items out, gives a like-for like increase of 3% y-o-y. This was a decent performancegiven the currency headwinds created by the strengthening of the HKD. The bestperforming segments (in terms of EBIT) were Telecoms (+123% y-o-y), Infrastructure(+34% y-o-y) and Ports (+16%) y-o-y, although the first two were boosted by accountingadjustments and new businesses respectively. Husky’s contribution was down 76% y-o-yand Retail’s performance was flat, as it suffered from HKD strength.
Result in-line; no major change to forecasts. In aggregate, CKHH’s 1H15 performanceand the outlook guidance was broadly as anticipated. We lower our 2015e proformarecurring and 2016e recurring net profit by 2% and 1% respectively, primarily to reflectdowngrades to consensus forecasts for Husky Energy. HSBC’s revised estimates are inlinewith consensus for 2015e and 9% below for 2016e.
We lower our target price to HKD110 (from HKD118) and maintain a Hold rating. Ourappraised valuation is HKD137/share (from HKD138/share) and we apply a 20% discount(previously 15%) to arrive at our HKD110 TP. The discount we use is towards the tighterend of our conglomerate coverage to reflect the liquidity of CKHH. At our target price,CKHH would trade at 13x 2016e PE or 15.5x after stripping out non-cash accountingadjustments – its nearest peers, at HSBC target price, would trade at 12-14x 2016e. Thekey to a re-rating are further progress in mobile consolidation and a weakening USD.