CK Hutchison Telco Ops Disappoint, We Adjust Near-Term Growth Outlook, FVE Cut to HKD 78

It was a mixed 2021 performance for CK Hutchison, or CKH, with the ports segment beating expectations, retail in line, but weaker-than-expected profitability from telco operations. We think inflation and keen competition in the telco and retail space will eat into near-term margins. As such, we cut our fair value estimate to HKD 78 from HKD 80, which also reflects drops in the market values of listed investments such as Hutchmed. CKH remains relatively attractive as a value play but its telco segment struggles are an overhang. Strategically, it needs to find merger partners in the U.K. telco space so the change in regulatory views toward telco operator consolidation in the U.K. could be positive. Nonetheless, CKH’s share price should find support as it trades on an attractive dividend yield of about 5% currently, coupled with an active share buyback policy. Dividends stay attractive in 2022 with profit from its U.K. tower assets sale.