Hutchison's Core Profits Fall At Slow, Steady Pace

First-half profits for Li Ka-shing's Hutchison Whampoa Ltd. will be a festival of one-off gains and charges on its sinking telecoms holdings, but core profits will fall sharply as wireless spending offsets growth in energy and infrastructure operations.

Hutchison is expected to post a net profit of HK$2.3 billion to HK$19.2 billion (US$295 million-$2.46 billion), depending on the size of provisions it takes on the falling value of Vodafone Plc and Deutsche Telekom, according to brokerage analysts.

Hutchison, which has businesses spanning telecoms, container ports, retailing property and energy, will report its results on Thursday.

However, the swing factor of one-time gains and provisions - a regular occurrence for the wheeling and dealing Hutchison - makes it difficult for analysts to gauge its true performance.

"We maintain our view that earnings are not a good yardstick for Hutch," Merrill Lynch analyst Christine Leung said in a research report. "Value creation through potential net asset value expansion has rarely been reflected in earnings." Hutchison earned HK$31.1 billion in the year-ago period, bucked up by gains from British mobile phone giant Vodafone's takeover of Germany's Mannesmann AG as telecom stock valuations peaked last year.

With the decline of telecom stocks, analysts expect the company to now take a provision of around HK$20 billion on its Vodafone stake, marking the carrying value down to zero.

The charge will partly offset an expected gain of about HK$30 billion from the sale of the group's stake in U.S. cellular firm VoiceStream Wireless to Deutsche Telekom.

But Hutchison is also expected to take a provision of up to HK$9.4 billion for its Telekom shares, which together with the Vodafone provision could eliminate much if not all of its net gain from the VoiceStream deal.

Hutchison's provisioning for Telekom shares also may shed light on whether the company was able to offload some of its VoiceStream holdings to a third party before the merger closed on June 1, as many market sources believe.

Telekom shares fell sharply earlier this month when 44 million shares, most of which were believed to originate from Hutchison, were sold in a controversial block trade by Deutsche Bank.

Hutchison has not admitted any connection to the sale. A Hutchison spokeswoman last week would only confirm that the company still has the 4.9 percent stake in Telekom that it received on June 1.