CK Hutchison Holdings Ltd. shares tumbled after the conglomerate founded by Hong Kong billionaire Li Ka-shing posted its biggest drop in profit since 2015, while warning of global risks from inflation to geopolitics and climate change that may weigh on its outlook.
Shares dropped as much as 4.9% in Hong Kong on Friday, the biggest decline since May and putting the company on track for a sixth straight daily loss. The stock was 3.8% lower at HK$44.55 by 9:54 a.m. local time.
The group’s net income tumbled 41% from a year earlier to HK$11.2 billion ($1.4 billion) in the six months through June, it said Thursday, amid a strong dollar and higher operating costs. Revenue fell to HK$223.9 billion from HK$229.6 billion a year earlier.
The conglomerate, now led by Victor Li, announced an interim dividend of HK$0.756 per share, compared with HK$0.84 a year before.
The firm warned that the outlook for the rest of the year is clouded. While China’s economy bounced back strongly in the first quarter after the country reopened from three years of Covid Zero, growth is losing momentum amid a property market slump, weakening consumption and falling exports. Elsewhere, Europe’s outlook remains gloomy as inflation pressures persist.
“Consumer and business confidence in particular may continue to soften as the longer term effects of higher interest rates and more constrained credit environments weigh on sentiment,” Chairman Li said in the earnings release. “Although energy and commodity prices have eased from their 2022 highs, they remain volatile and the risks of supply side driven spikes cannot be ruled out. Further, risks associated with climate change may be intensifying with impacts which are increasingly difficult to anticipate.”
Ports, Telecoms
The company’s ports business was hit by stagnant global demand for consumer goods, weak Chinese exports to major Western markets and elevated inventories in the US and Europe. That overstocking is likely to continue to hinder the recovery in cargo demand in the second half, but volumes are expected to increase in late 2023 as global demand rebounds, it said.
The telecom unit saw a 20% drop in earnings before interest, taxes, depreciation, and amortization, partly due to foreign currency revaluation of some monetary assets. But CK Hutchison also said it faces rising energy costs and higher capital requirements to expand existing mobile networks especially in Europe.
CK Hutchison has been reducing its exposure in the region’s telecommunications sector. In June, its Britain-based carrier Three UK agreed to merge with Vodafone Group Plc’s unit, in a deal that will create the biggest wireless company in the country if it gets approval from authorities. Vodafone will have the right to acquire the entire merged business after three years, if it reaches a value of at least £16.5 billion including debt.
The conglomerate also cut holdings in its Italian mobile and fixed network business, forming a partnership with Swedish private equity group EQT AB, which will see CK Hutchison hold 40% of a newly formed firm that will own and operate the business.
Retail was a rare bright spot in the earnings report, posting a 17% increase in Ebitda. That was driven by gains in Europe and Asia, particularly the robust recovery in demand for health and beauty products in mainland China at the start of the year, it said.
CK Hutchison’s sister company CK Asset Holdings Ltd., which focuses on real estate development, reported HK$10.3 billion in net income in the first half, compared to HK$12.9 billion in the year before, according to a separate filing Thursday. Property sales revenue slumped by almost 60% in the period. The interest rate environment may cloud the outlook for the business and Hong Kong’s office leasing market remains under pressure.
(Updates to add share move in first and second paragraphs.)