CK Hutchison: Telecom Update Positive; Stock Remains Good Value

We retain our fair value estimate for CK Hutchison Holdings of HKD 60. Following a typical CKHH result in 2023, where the diverse company operations across sectors and geographies meant that the positives and negatives largely offset each other, leaving underlying revenue and pre-IFRS EBITDA down 1% with underlying net profit down 9% mainly due to increased interest costs. Underlying free cash flow increased by 12% to HKD 21.5 billion. Somewhat unusually for CKHH, the 2023 result contained few large one-off items, providing a decent base for forecasting future earnings. Even if we assume operating earnings grow very slowly, which our forecasts do, the stock looks highly inexpensive, trading on a forward price/earnings ratio of only around 5.4 times. Retail and infrastructure were the positives in the 2023 result, with ports and telecom being the main negatives. Port earnings have been negatively affected by reduced storage income normalizing from the elevated 2022 levels as supply chain disruptions of that year improve.