Cheung Kong development has seen a substantial increase in profit, meanwhile Its net rentals have decreased.
While net rentals were higher than our forecast, this was offset by softer hotel contributions as hotel earnings fell 3% y/y.
On a net basis, net rental and hotel earnings were down 4% y/y to HK$1,613mn but were HK$88mn higher than our forecast.
Perhaps more importantly was the increased significance of Cheung Kong’s infrastructure business.
In 1H13, contributions from the infrastructure business rose by 24% y/y to HK$908mn.
Revaluations and cap rates – Investment properties only revalued up by 1.9% – Net revaluation gains for Cheung Kong were HK$519mn in 1H14 (versus HK$1,816mn in 1H13).
This comprised of HK$560mn at the subsidiary level and –HK$41mn at the joint venture level.
Expressed as a percentage of Cheung Kong’s investment properties, the HK$560mn gain represent an increase of 1.9%.
Although revaluation gain was small, helped by strong earnings contribution from Hutchison, Cheung Kong was able to enjoy BVPS growth of 5.0% in 1H 2014 to HK$163.45/share.
Change in net debt – Net debt and gearing down to HK$6.5bn and 1.7% – Similar to the December year end period, Cheung Kong’s balance sheet has continued to strengthen.
Its net debt was further reduced from HK$8.7bn as at December 2013 to HK$6.5bn as at June 2014, putting its net-debt-to-equity ratio at only 1.7%.
Dividends and outlook – Playing it close to the chest – Excluding the HK$7.00 special dividend that was declared back in March 2014, Cheung Kong raised its interim dividend by 10% to HK$0.638/share, slightly higher than our estimated HK$0.63/share.