2008/2009 Guide to Asia's Blue Chip Companies

Conglomerates

Big is beautiful

Hong Kong’s conglomerates demonstrate the value of a diverse portfolio of businesses

Hong Kong dominates the FA100 conglomerate sector with all four constituents hailing from the territory. Despite its diminutive geography Hong Kong is home to some of the world’s great entrepreneurs, such as Li Ka-Shing, and the conglomerates they built.

New to the list in 2008, Hutchison Whampoa made an entrance by scoring a top-20 place. Hutchison is the world’s largest container port operator and, in true conglomerate style, its diverse holdings span property, retail, infrastructure and telecommunications. The company turned over roughly HK$309 billion ($40 billion) for the year ended December 31, 2007 and, despite the poor economic conditions this year, it generated HK$176 billion in the first half of 2008.

This year its telecommunications division, Hutchison Telecom, enjoyed growth with a customer subscriber base that rose 68%. There were strong contributions from Indonesian operations where user numbers grew 12.5% quarter-on-quarter to 3.6 million and from the company’s third-generation customers in Israel and, particularly, Hong Kong, where it successfully launched the Apple iPhone.

Despite the effect of the economic slowdown on the demand for high-grade office space and declining tourist numbers, the restricted property supply in Hong Kong means that companies such as such as Hutchison Whampoa, Swire Pacific and Jardine Matheson can make profits even in lean times. In addition, analysts such as Schroder Investment Management point out that collapsing asset values in countries such as China create attractive opportunities for companies with healthy balance sheets and cash to spend.

As with Hutchison, Swire Pacific, which also made the FA100 list last year, is another conglomerate with significant exposure to the property and rental markets. These sectors performed well in Hong Kong in the first half of the year. In March, Swire Properties announced pre-commitments of 87% for One Island East, its 70-storey, 1.5 million square foot grade-A office development. On the mainland, the company is pursuing investments in Guangzhou for a major retail centre, offices, hotels, a performing arts centre and a library. In Shanghai, its retail centre, offices, hotels, serviced apartments and residential units are being developed primarily for long-term investment. Last February, Swire Properties formed a joint venture with Sino-Ocean Land Holdings to develop a retail-led, mixed-use project in the Chaoyang district of Beijing and, to support the rash of mainland projects, Swire established its mainland headquarters in the capital in March.

In line with the positive approach this year, Swire Hotels, a wholly-owned subsidiary of Swire Properties, announced its plan to develop and manage luxury boutique hotels for travellers in Hong Kong, the mainland and the UK. In Hong Kong alone Swire Properties plans to open two such hotels in 2009.

Jardine Strategic, part of Jardine Matheson, which has interests in supermarkets, property, the Mandarin Oriental hotel group and autos, decided to take the Mandarin Oriental group to Asia’s edge when it announced that its hotel will open in Moscow in 2011.

Telecoms was another area of success for Hong Kong conglomerates. Hutchison Telecom, the first to market with an international 3G network, today offers mobile services in Hong Kong and Macau, Israel, Indonesia, Vietnam, Thailand and Sri Lanka. Last year it brought home a profit of HK$69.3 billion from the sale of its stake in the Indian mobile firm Hutchison Essar.

Airlines are likely to be in for a knocking given declining numbers of business and leisure passengers, and reduced cargo volumes as US and European markets contract. Nonetheless, the Hong Kong International Airport has impressive figures for cargo volumes. In 2008, it was the world’s busiest international cargo airport for the 11th consecutive year. To expand capacity, Swire Pacific, which owns 40% of Cathay Pacific, Asia’s third largest airline, as well as regional carrier Dragonair, broke the ground for its new cargo terminal last September. The HK$4.8 billion investment will be complete in 2011 and will bring an annual capacity of 2.6 million tonnes.

After years of discussion, the tender for another major building project was announced. In January, Gammon Construction, which is part owned by Jardines, won the design and build contract to develop Tamar, the former site of colonial government offices that sits on prime harbour-side real estate. The project is due to complete in 2011.

Natural resources have been a staple of Asia’s growth and are likely to remain an important sector once growth rates pick up again. Hutchison followed its purchase of the Wellington Electricity Distribution Network in April by expanding its foray into New Zealand with the purchase of Taharoa Iron Sands for approximately NZ$250 million ($1.4 million).

Ranking by revenue
Country	Company	(million $)
HK	Hutchison Whampoa	28,035
HK	Jardine Matheson	19,445
HK	Jardine Strategic	15,328
HK	Swire Pacific	2,763

Ranking by revenue growth
Country	Company
HK	Jardine Matheson	19.40%
HK	Jardine Strategic	19.30%
HK	Hutchison Whampoa	19.00%
HK	Swire Pacific	12.80%

Ranking by net profit
Country	Company
HK	Hutchison Whampoa	76.30%
HK	Swire Pacific	42.00%
HK	Jardine Strategic	38.50%
HK	Jardine Matheson	35.70%

Ranking by ROE
Country	Company
HK	Swire Pacific	21.00%
HK	Jardine Strategic	16.80%
HK	Jardine Matheson	14.70%
HK	Hutchison Whampoa	10.50%

Share price
Country	Company	Share price, Nov 1, 2007	Share price, Nov 1, 2008	Currency
HK	Hutchison Whampoa	96	41	HKD
HK	Jardine Matheson	30.6	23.5	USD
HK	Jardine Strategic	16.9	11.9	USD
HK	Swire Pacific	107.4	53.5	HKD