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Being boring has put billionaire Li Ka-shing in a higher-risk position.
Li, who earned the moniker Superman for his canny investing, has spent years building an empire that’s almost like a trust. CK Hutchison Holdings Ltd. and Cheung Kong Property Holdings Ltd., which reported full-year results Wednesday, get most of their earnings from staid but stable assets such as infrastructure, telecoms and utilities. But being dull is coming at a cost, and shares of both have underperformed the broader market over the past 12 months.
In his hunt for steady cash flows, Li is quite often locking horns with regulators, especially in Australia, where his bid to buy Duet Group is still pending approval from the Foreign Investment Review Board. And the political climate there doesn’t look great, considering the government in August blocked Cheung Kong Infrastructure Holdings Ltd. and State Grid Corp. of China from buying a majority stake in state-owned power network Ausgrid.
In Europe, meanwhile, authorities in May stymied Li’s plans to buy UK carrier O2, while his Three business lags in its share of UK mobile subscriptions.
Last June’s Brexit vote has also made Li vulnerable to a weaker pound. CK Hutchison, whose 2016 full-year net income came in at $4.3 billion, slightly beating estimates, said the impact of Brexit negotiations, as well as new US presidential policies plus upcoming elections across Europe, “remain unknown and could affect the economic environment of countries in which the group operates.”
Thanks to a merger with one of its rivals, CK Hutchison’s telecoms business in Italy has been performing very well, but further upheaval could lead to a slowdown in European demand that would particularly hurt ports and retail.
Investors may take some small comfort in Li’s attitude toward dividends. Although CK Hutchison’s average payout ratio trails those of many other Hong Kong-listed conglomerates, its final dividend per share of HK$1.95 was increased from HK$1.85 a year earlier, while CK Property agreed to raise the payout to HK$1.15 a share versus HK$1.05 12 months ago. Li also said there was a high chance the group could raise dividends in the future.
Real estate in Hong Kong is hot and developers have benefited from a resurgent property market that has defied government cooling measures. Li said on Wednesday that Hong Kong housing prices have little chance to fall, although CK Property will have to work hard to ensure it snares a decent share of what is a shrinking land bank in one of the world’s least affordable cities. CK Property’s underlying profit, which excludes gains from real-estate revaluations and deferred taxes, increased to HK$18 billion, versus the average analyst estimate of HK$18.2 billion.
It’s true that retail has been tough in Hong Kong, and Li said the business got worse over the course of the year. But it makes up the largest single component of CK Hutchison’s revenue, and the health and beauty segment in particular is showing encouraging rates of growth. CK Hutchison said its retail division plans net openings of more than 1,000 stores in 2017, with 65 percent of those in health and beauty in mainland China and Asia.
Li dismissed suggestions of any Watson spinoff but it might be time to consider reviving those sale blueprints. At any rate, it would divert some attention away from his other adventures in telecoms and utilities.
— Bloomberg
Nisha Gopalan is a Bloomberg Gadfly columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and
a reporter