Hutchison, #13, effective sale of warrants on part of their Vodafone holding was taken as good news by the market, as so it should, and perhaps this was the prime news to retain public interest in the market. The issue of a bond which gives the option to buyers to take Vodafone at a fixed cost instead of a cash repayment, so it is effectively a warrant, and in addition Hutchison gets the benefit of the reduced interest payment.
Hutchison has many irons in the fire, and the telecoms sector was merely one of them, and before the huge jump in Orange, which proceeded the series of investment changes which culminated in its holding of Vodafone, this was a rather subordinate division which was at that stage more hope than physical earnings. Now it is dominating ones assessment of the company as a whole, and Hutchison has overnight been turned into a giant in the international telecoms membership.
Hutchison's other interest are in port handling, where again its interests spread over continents rather than merely countries, with its facilities being made available in UK, continental Europe and even Panama, as well as Hong Kong and China. Sooner or later this will all be bundled up and placed in a nice basket and sold to the Hong Kong public, and international investors, as the biggest and best member of this business community.
Hutchison's latest bonanza had come in that former white elephant, Husky Oil, and embarrassment which had taken provision after provision in previous years. This company has branched out and in addition to its mineral deposits has a viable distribution chain. Hutchison is well known in HK for its retail departments, Park'N Shop, AS Watson and Fortress, which do to some minor extent make use of the company's own property portfolio, but otherwise are more an income stream, with a fairly bare capital outlay. There are also other interests, such as Hongkong Electric, #6, but the company is also effectively a large international merchant, in the modern sense, bank.
Because of the huge changes in this group over the past two years we are not willing to place an absolute value on the shares of the group, and our valuations range from $60 a must buy, to $120, a probable sale. So its present share price of $98, up $1.75 on the day, is probably on the higher side of our valuation, but at a level which will quite quickly become reasonably cheap. The report will be published in April, although the results will be announced in early March, and this may help to enable us to form a more informed opinion.
Cheung Kong, #1, holds 50% of Hutchison, and at $98 that means that it is worth $90 to each Cheung Kong share. This pervades other interests, which are countless and diverse, in much the same way as one looks at Wharf, #4, rather than Wheelock, #20, which is its parent and holding company. At December 1999 the total assets of the Cheung Kong group were listed in the balance sheet, and this is not an optimum valuation as some parts are more valuable than their merely being reduced to balance sheet assets, at $140 million compared to the $240 million at which the share price of $103, values it.
But over the nearly 30 years of Cheung Kong's publicly listed life it has been a wonderfully productive investment for its holders, and there is no reason to expect that its share growth will slow down.
Anyway to revert to the market, it was really HSBC, #5, which held the market and pushed it into forward gear, when it gained 64 points to 15,500, when the bank rose, at the very close, to $119, for a jump of $1.50 on the day. At this time the bank is consolidating, having broken out upwards to a brand new level, before it stretches out into another gallop. The results are expected to be announced on 26 Feb, together with Hang Seng Bank, #11, yesterday up $2 back to $105.50.
Properties, especially SHK Props, #16, paused to stop for breath, as it eased $3 to $79.75, and Henderson Land, #12, was also panting, down 80 cents to $42.70, as Sino Land, #83, was suspended in the afternoon for a major placement. Sino Land's placement is pitched at $4.35, which is at a large discount, more than 8%, to the market price, even after that price had already been marked down by 12.5 cents to $4.875. This placement is at a huge discount to the NAV, which was shown at June 2000 at $27.2 billion, or $7.50 per share. Investors who had previously drawn some comfort by its discount to its asset value are now faced with a large dilution, as this issue at $4.35 must cause to the $7.50 previously thought, and as existing shareholders are not being given even the option to buy the placement shares which are watering down their own assets. When companies ignore shareholders' rights, as Sino Land is doing, there is little or no purpose for small independent investors to subscribe in such a company.
It was inevitable that some of these companies, like Johnson Elec, #179, and Li and Fung, #494, excellent companies as they are, with heavy price earnings multiples should fall, and that is precisely what is happening at this moment. Johnson fell by 80 cents to $10.45 and Li and Fung dropped 45 cents to $12.75. Johnson's profit for the year to March 2002, even, is expected at under $1.8 billion, and the maximum multiple in my book would be 20 times, so that would put Johnson's capitalisation at $36 billion, or $10 per share, so this price is possibly becoming acceptable, albeit prematurely. Li and Fung's profit for 2001 is being forecast at under $1.2 billion, so, on the same 20 times PE basis, the capitalisation, maximum, would be $24 billion, or about $9 per share. This company is rather devoid of assets, so it cannot provide comfort in that direction, so I would be surprised if this share can keep up at this very optimistic price level.
Daily Quommentary
Jan 10, 2001 - 09:39:54 HKT
Quamnet News Service
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