Hutchison Whampoa's growth profile stomps market's woes over a slowdown

Sustainable divident growth is also expected.

Hutchison Whampoa has continued to deliver double-digit recurring EPS growth in 1H14 (+13% y-y), dispelling market concern over a slowdown. While 3-Italia’s LBIT was a disappointment, it is thought that this will draw Hutch even closer to potential industry consolidation.

According to a research note from Nomura, it is confident, meanwhile, over the sustainability of Hutch’s growth profile, and 2H14F EPS growth should further improve sequentially (if excluding impact of the sale of its 25% stake in A.S Watson), due to: the maiden contribution from O2 Ireland, and HKD1.8bn of profits from the sale of Lujiazui property.

Further, the report also cited the improving sales growth for China retail (Watsons China’s SSSG rebounded to 4.3% in 1H14, from 1.4% in 1H13) and China property (completion rising to 5.1mn sqft in 2H, from 2.9mn in 1H); and stronger 2H seasonality for ports, retail and telecom.

Despite lowering its FY14F and FY15F recurring EPS mostly owing to one-off asset spin-off and disposals, Nomura’s NAV (HKD135) and TP (HKD120) remain unchanged.

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Here’s more from Nomura:

Catalysts: Potential Italian mobile consolidation; renewed hope of more asset monetisation after the market recovery:

Italian mobile consolidation – Market conditions seem to have become increasingly favourable for consolidation, as regulatory bodies have shown support to industry consolidation in other European markets (from four to three players), and 3-Italia’s losses have widened.

Asset monetisation – While news on this front has turned quiet since the partial sale of A.S. Watson in April, we believe such opportunities may resurface following stronger equity markets and the recovery of Hong Kong/China property markets recently.

Valuations: 21% NAV discount and 13x 2015F P/E (EPS: HKD8.5) Our TP of HKD120 is based on an 11% discount (ie, the historical mean) to the mid-2015F NAV of HKD135.

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