Billionaire Li's Hutchison, Cheung Kong Surge in Hong Kong After Earnings

Li Ka-shing’s Hutchison Whampoa Ltd. and Cheung Kong (Holdings) Ltd. gained in Hong Kong trading today after earnings beat estimates and the billionaire said he’s optimistic about the world economy and China’s growth.

The prospects for global growth remain stable, the 82-year- old said yesterday. Hutchison’s stock jumped the most in almost two years after first-half net income rose from its port and retail earnings. Developer Cheung Kong had the biggest gain in nine months as it benefited from rising home prices.

“He seems to be fairly bullish,” said Alexander Chia, an analyst at Standard & Poor’s Equity Research in Kuala Lumpur. Hutchison “is a cyclical stock, and in an up cycle, the valuation isn’t particularly demanding, and there is room on the upside.”

Dubbed “Superman” by Hong Kong’s media for his investing skill, Li correctly forecast in 2007 that China’s stock-market bubble would burst. Li, Hong Kong’s richest man, demonstrated his confidence as economies emerged from the worst recession since World War II by leading a group that offered $9.1 billion for U.K. power networks last month in his biggest acquisition.

Hutchison, Li’s biggest company with operations in 54 countries, rose 9.7 percent to HK$58.20 at the 4 p.m. close in Hong Kong, its biggest gain since October 2008 and the highest since March. Cheung Kong gained 3.9 percent, the most since October last year.

“The global economy remains vulnerable to a number of uncertainties and destabilizing forces,” Li said. “Nevertheless, the overall outlook for the global economy is likely to remain generally stable.” Li said he’s “very optimistic” about his companies’ prospects and has been buying shares in them.

‘Phenomenal’ Performance

Hutchison said net income rose 12 percent to HK$6.45 billion ($831 million) in a Hong Kong exchange filing after the market closed yesterday. Net income at Cheung Kong climbed 4 percent to HK$11.9 billion.

“The retail segment has done phenomenally well, especially considering talk of a slowdown in Europe, where a lot of the business is based,” said Kalai Pillay, who analyses Hutchison’s debt as senior director at Fitch Singapore Pte.

Hutchison’s earnings exceeded the HK$4.4 billion average estimate of four analysts in a Bloomberg survey. Cheung Kong’s profit beat the median HK$7.76 billion estimate of three analysts surveyed by Bloomberg News.

Without the contribution from Hutchison, Cheung Kong’s profit rose 1 percent to HK$8.7 billion.

Slowing loan growth in China suggested steady economic expansion there, Li said in the earnings statement.

Stress Tests

“The strength of the mainland’s economy is evident,” he said. “The slowing growth in new lending suggests that pressure on tightening liquidity may ease in the second half year. These favorable conditions support optimism towards a continuing stable macroeconomic environment in the mainland.”

Li said he has “full confidence” in China’s banks. The country’s banking regulator told lenders to include worst-case scenarios of prices dropping 50 percent to 60 percent in cities where they have risen excessively, a person with knowledge of the matter said this week, declining to be identified because the regulator’s requirement hasn’t been publicly announced.

Hutchison, 49.9 percent owned by Cheung Kong, booked higher profit from ports, retail and property, helping the Hong Kong company fund an eighth year of mobile-phone losses in Europe. The rebound has prompted Li to boost his investments this year, capped by last week’s bid by another two of his companies to buy Electricite de France SA’s power networks in the U.K.

3G

Hutchison’s third-generation mobile telephone units will be profitable in most markets by 2011, Li said. The 3 Group, the company’s telecommunications division, offers high-speed wireless services in seven markets in Europe and Australia.

“3G next year will make money in almost every country, barring any special circumstances,” Li said at a briefing. “Now some countries are already making money this year, though I don’t think we will make much money this year overall.”

3 Group lost HK$998 million before interest and tax in the first half, compared with HK$5.45 billion a year earlier. The unit has been unprofitable since starting services in 2003.

Cheung Kong booked a HK$5.81 billion profit from property sales after Hong Kong’s homes prices rose more than 10 percent this year. The developer will complete more property transactions in the second half, Victor Li, deputy chairman of Cheung Kong and Li’s son, said at the briefing.

Hong Kong developers normally begin selling apartments while they’re still in construction and book profits after they are completed.

Stamp Duty

This year’s home-price gains in the city added to 2009’s 29 percent advance, according to the Centa-City Leading Index, a weekly measure developed by Centaline Property Agency Ltd. and City University of Hong Kong.

“Cheung Kong’s property business has positioned itself for some significant growth,” said David Ng, a Hong Kong-based analyst at Royal Bank of Scotland Group Plc. “They are in for a good year in terms of apartment sales.”

Victor Li said he doesn’t see a property bubble. The Hong Kong government has increased the stamp duty on luxury properties and pledged to raise the supply of land amid concerns a real estate bubble is developing.

Li Ka-shing said Hong Kong property buyers will be alright if they are not overstretched.

“If you have the financial ability and you’re not overleveraging, in the long run buying properties in Hong Kong has almost always been a good investment,” he said at the briefing.

Ports

Hutchison’s port unit, the world’s largest container terminal operator, reported a 35 percent gain in first-half profit as a rebounding global economy spurred world trade.

Hutchison Port Holdings Ltd.’s earnings before interest and taxes rose to HK$6.1 billion from HK$4.49 billion a year earlier. Sales climbed 14 percent to HK$17.7 billion.

After arriving in Hong Kong as a refugee from China in 1940, Li swept factory floors to survive during the Japanese World War II occupation of the city between 1941 and 1945. After the war, he opened a plastic flower factory and began buying Hong Kong property in 1967 when riots tied to China’s Cultural Revolution caused land prices in the city to collapse.

Li was listed as the world’s 14th-richest person in March by Forbes magazine, compared with 16th a year earlier, after his wealth increased to $21 billion.

To contact the reporters on this story: Kelvin Wong in Hong Kong at kwong40@bloomberg.net; Mark Lee in Hong Kong at wlee37@bloomberg.net; John Duce in Hong Kong at Jduce1@bloomberg.net.

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