20130807-高盛-Hutchison_Whampoa__0013.HK__Post-results_update__Investment_thesis_intact__TP_up_to_HK_110.4_33页_711kb

Hutchison Whampoa (0013.HK) Summary

Core Content

Hutchison Whampoa (Hutch) has maintained its investment thesis following the post-results meeting, with the company expressing confidence in achieving its target of doubling EPS to HK$10.6 by 2015. The firm has raised its 12-month target price to HK$110.4 from HK$102, based on a revised 2013E NAV of HK$130 and a target NAV discount of 15%, which is the historical average.

Main Points

• Investment Thesis: The company's strong free cash flow (FCF) swing and ability to deliver growth through capital allocation, efficiency gains, and M&A are still considered valid.
• EPS Forecast: The 2014-15E EPS has been revised up by 2% (2013E EPS unchanged), with forecasts still 9-14% above Bloomberg consensus.
• Valuation: The stock is currently trading at a 29% forward NAV discount, 10.9x 2014E P/E, and 0.8x EV to invested capital. These valuations are considered attractive.
• FCF Growth: Group FCF is projected to increase from HK$2.5bn in 2013E to HK$22.3bn in 2015E, indicating a strong step-up in cash flow.
• CROCI: The company's return on capital (CROCI) is expected to rise from 8.4% in 2012 to 9.4% in 2015E, aligning with its weighted average cost of capital (WACC), which is a positive re-rating catalyst.
• M&A Focus: Hutch is open to M&A opportunities in European telecom markets, with a particular focus on Italy, where it lacks scale. Key considerations include the partner's balance sheet, synergy benefits, and regulatory hurdles.
• Dividend Yield: The dividend yield is expected to remain around 2.5-3.0%, with a payout ratio of 29-30.3%.

Key Financial Highlights

Metric	2013 (Actual)	2014E	2015E
EPS (basic, post-except)	6.13	7.56	9.43
P/E (analyst)	11.9	10.9	9.7
P/B	0.8	0.9	0.8
EV/EBITDA	13.5	12.6	11.6
CROCI	6.9	8.1	9.1

FCF and EBIT Trends

• FCF Yield: Expected to rise from 0.8% in 2013 to 7.9% in 2015E.
• EBIT Growth: Hutch delivered 9-35% YoY EBIT growth across all divisions in 1H13, with Europe outperforming Asia.
• EBITDA Growth: Expected to increase from 37.475 HK$mn in 2013 to 79.451 HK$mn in 2015E.
• EBIT Return on Assets: Projected to rise from 8.5% in 2013 to 10.2% in 2015E.

Regional Performance

• Europe: Demonstrated strong resilience with 7% revenue, 20% EBITDA, and 16% EBIT growth YoY.
• Mainland China: Experienced a 7% YoY EBIT decline due to property booking timing, but the group is committed to expanding its retail stores.
• Hong Kong: Showed 21% YoY EBIT growth, supported by disposal gains.
• Asia, Australia, and Others: Showed mixed performance with EBIT growth in non-HK/China markets.

Key Risks

• Global Macro Downturn: Potential economic downturn could affect overall performance.
• Intensifying Competition in 3G Markets: Increased competition might impact telecom division profitability.

Investment Profile

• Valuation: The stock is considered attractively valued, trading at a 29% forward NAV discount.
• Bull-case Valuation: If Hutch achieves its EPS target of HK$10.6 in 2015, the bull-case valuation would be HK$122.5, implying a 34% variance from the current share price.
• Dividend Yield: The company's dividend yield remains attractive at 2.5-3.0%.

Summary

Hutchison Whampoa continues to show strong financial performance and growth potential across its divisions, particularly in Europe. The firm's revised target price and improved CROCI suggest a positive outlook for the stock. Despite some risks, the company's solid balance sheet and strategic M&A focus support its valuation and growth prospects.