Analysts Predict Hutchison Whampoa Expansion Will Offer Long Term Benefits

Tuesday, May 29, 2001
Hutchison Whampoa Ltd's deal to expand its container port network to six new countries will not bring big near term gains in revenue and net asset value, but analysts said it offers good long-term growth potential.

Hutchison said on Monday it had acquired the overseas ports arm of the Philippines' International Container Terminal Services Inc., bringing 23 container and general cargo berths in Mexico, Argentina, Saudi Arabia, Pakistan, Tanzania and Thailand.

The Hong Kong conglomerate, controlled by tycoon Li Ka-shing, has declined to disclose the price, but analyst estimates on the size of the deal ranged from US$240 million to US$542 million. Most estimates were based on the 1999 sale of a 29 percent stake in ICTSI International Holdings Inc (IIHI) for US$70 million to J.P. Morgan International Capital Corp and Capital International Global Emerging Markets Private Equity Fund.

This implied a then-valuation of US$241 million for IIHI, and analysts have been estimating new valuations based on higher throughput and revenues since then. Several said the ports had total container throughput of 1.6 million 20-ft.-equivalent (TEUs) in 2000.

Analysts at Goldman Sachs (who advised Hutchison on the deal) estimated a total equity value of US$300-350 million, or about 17 to 20 times historic 2000 earnings of US$17 million for the seven container ports involved in the deal. "We would view such a valuation as reasonable when compared with our existing net asset value estimate of 20 times forward earnings for Hutchison's developing port network in China," on equity analyst said.

Goldman Sachs advised Hutchison on the deal. He added that the ports acquired under the deal are at an early stage of development and would not provide any material upside to 2001 and 2002 earnings and net asset valuation estimates but said Hutchison would be able to enhance the value of the ports in the longer term.


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