As a diversified large integrated enterprise with assets and business spread all over the world, CK Hutchison is based on four core businesses: ports, retail, infrastructure and telecommunications, and has a stable income, profit, cash flow and capital structure. coupled with high dividend yield and strong buyback. We believe that while Hong Kong stocks are still subject to the epidemic in the mainland, the conflict between Russia and Ukraine and the strength of the US dollar, CK Hutchison's value of "passing through a bear market" is highlighted and can be used as a defensive choice in market turmoil.

In addition, as a holding company holding diversified business, CK Hutchison's market capitalization is obviously discounted compared with its book value, shareholding assets or the valuation of similar enterprises. We also evaluate the reasonable valuation of long and from the perspective of the valuation of the SOTP segment, and refer to the discount of the book value of vs in the market capitalization of large integrated business holding companies in the history of the Hong Kong market. Combining several measurement methods, we estimate that the corresponding market capitalization of Changhe ranges from HK $2597 to HK $349.8 billion (HK $67.7-HK $91.20 per share). Compared with CK Hutchison's closing market capitalization of HK $209.4 billion (HK $54.60 per share) on May 13, there is an overall discount of 19-40 per cent.

CK Hutchison's current profit level has basically returned to that before the epidemic. CK Hutchison, with a huge amount of cash in hand, is ready to move on to a new "layout era". We believe that CK Hutchison's new opportunity lies in investing in Southeast Asia, which is expected to become a "new pole" of global economic growth and the next fulcrum of CK Hutchison's investment, thanks to the vigorous development of manufacturing and the Internet.

From Cheung Kong + Hutchison Whampoa to today's CK Hutchison, global and diversified asset layout: as the main listed company of Changhe's non-real estate business, CK Hutchison (00001.HK) was reorganized from Cheung Kong and Hutchison Whampoa in 2015, while the real estate business was spun off to CK Asset (01113.HK). Since then, the parallel structure of the two enterprises has been established. CK Hutchison diversified layout of four major businesses: ports, retail, infrastructure and telecommunications, covering more than 50 countries and regions around the world. In 2021, 83% and 44% of the income of senior and Changshi, respectively, comes from overseas, bringing a more diversified and decentralized asset base.

Cash bull with stable operation and high dividend, the defense value of "passing through the bear market": 1) CK Hutchison's capital structure and cash flow have remained stable for a long time. Under the background of diversified and steady investment, the asset-liability ratio has been maintained at about 50% in the past four years, and EBITDA margin has been maintained at about 25% in the past six years. After 2020, CK Hutchison's cash holdings increased with the sale of the tower business. In 2021, holding cash and cash equivalents of HK $153.1 billion. 2) CK Hutchison's dividend is stable and has maintained a dividend ratio of more than 30 per cent for six consecutive years. The dividend per share in 2021 is HK $2.66, an increase of 15 per cent over the same period last year, and the dividend yield is 5.3 per cent. 3) CK Hutchison began to increase his share buyback efforts in 2021, repurchasing a total of HK $1.018 billion last year, entering 2022 and saying that he would use some of the funds obtained from the sale of assets for repurchase, which we think may provide support to the company's share price.

Hong Kong's local public utilities, finance, infrastructure and other blue chips, represented by CK Hutchison, have outperformed the market in the Hong Kong bear market over the years, with prominent defense value and the defense value of "passing through the bear market". These blue chips basically have common characteristics: 1) most of the business is monopolistic or less competitive. 2) the dividend level is high, which can hedge against inflation and market risk. 3) have a fixed investment allocation group. 4) most of the business is in Hong Kong and overseas, and is settled in Hong Kong dollars and foreign currencies, so the risk of RMB depreciation is relatively small. In addition, the next Chief Executive of Hong Kong will take office in July. We believe that the new Hong Kong Government will focus on social stability and actively improving people's livelihood, and the supply of land and housing will be a "top priority". As for the four major real estate companies in Hong Kong, which hold a lot of land, the Hong Kong Government is very likely to recover land from them in order to increase land supply, but the specific way is not determined at present, so it may increase the uncertainty of the local real estate sector in Hong Kong. We believe that it will highlight the growth and the investment value after the real estate business has been spun off.

It is believed that with the vision of the "layout era" of Changhe companies, Southeast Asia may become the direction of investment: in the increasingly complex international political and economic situation, we believe that the focus of CK Hutchison in the next decade may still be in Asia. The Southeast Asian market, which is booming in manufacturing and the Internet, may become the direction of attention. At present, CK Hutchison's four major businesses have a layout in Southeast Asia. In addition, CK Asset, who focuses on real estate, has also invested in Singapore real estate projects and now plans to enter Vietnam; while Horizons Ventures, as a venture capital company, mainly focuses on science and technology and innovation technology direction. He has previously invested in many Indonesian projects and recently set up an office in Singapore.

Looking back at the long and global asset allocation process, its preference has a certain monopoly and steady cash flow, and values asset quality and return on investment, especially whether these assets can still be profitable when the market experiences large fluctuations. Therefore, the asset structure, including telecommunications, ports, hydropower and gas, and petrochemical energy is typical. In terms of regional selection, Changhe companies have gradually distributed in Europe since 2013, but they have also begun to sell European assets in recent years. We believe that the negative interest rate policy introduced by the ECB in 2014, superimposed by the dust of Brexit, has a negative impact on CK Hutchison's European return on assets. The impact of the recent conflict between Russia and Ukraine on the European economy and geopolitics, superimposed on the return of the United States to the austerity cycle, is also full of uncertainty. In view of this, the sale of European assets is also a kind of "self-preservation".

We believe that CK Hutchison's portfolio management may be comparable to Buffett's Berkshire position portfolio, both of which have maintained a high degree of caution in past investments, tend to be risk-averse and prefer assets with high cash flow. In the world political and economic landscape is constantly changing, Berkshire's position also emphasizes stability, the unprecedented high level of cash, but also reflects the pursuit of "cash is king."

The four major businesses of port, retail, infrastructure and telecommunications have regained momentum with the relief of the global epidemic, but opportunities and challenges coexist.

Port business: the territory covers the whole world and is in a leading position in the industry. Revenue in 2021 increased 29% year-on-year to HK $42.3 billion, up 20% from 2019, accounting for 9% of the company's revenue of HK $15.2 billion, up 39% from the same period last year, up 13% from 2019 and accounting for 13% of the company's EBITDA. We believe that the port enterprises in the location, hydrology, waterways and other aspects of regional monopoly, CK Hutchison will directly benefit.

The temporary easing of the epidemic in 2021 has stimulated the demand for container shipments. CK Hutchison's port business has fully recovered or even exceeded the pre-epidemic level, including the ports of the United Kingdom, Barcelona, Spain and Rotterdam in Europe. Asia's Lanchapeng port in Thailand, Jakarta port in Indonesia, and free ports in Mexico, the Bahamas and Panama have all recorded business growth. We believe that maritime demand will remain strong throughout 2022. At present, the supply and demand of global port capacity is in a tight balance, but due to the repeated epidemic, some ports become more congested, logistics supply chain obstruction, transport capacity supply and demand imbalance, so that global freight rates remain high.

Retail business: Watsons Group, mainly one of the world's largest personal care, health and beauty brands, operates more than 16300 stores in 28 markets around the world. Retail revenue in 2021 rose 9 per cent year-on-year to HK $173.6 billion, up 3 per cent from 2019, accounting for 39 per cent of the company's contribution of HK $16 billion, an increase of 11 per cent, down 5 per cent from 2019 and accounting for 14 per cent of the company's EBITDA. We believe that the retail business or CK Hutchison is the most threatened by competition, hugging online in time to speed up the O2O transformation may usher in a new machine.

Thanks to the easing of the epidemic, Watsons Group's business in Western Europe grew strongly in 2021, while its business performance in Eastern Europe was also good. The European business as a whole has returned to or even exceeded the pre-epidemic level, contributing 55% of Watsons' revenue. The leading scale effect is significant, but we should pay attention to the impact of the conflict between Russia and Ukraine on Eastern European business. Chinese mainland, on the other hand, contributes 13% of Watsons' revenue, but given the repeated local outbreaks that affect offline passenger flow, as well as the new force of offline makeup and competition from online platforms, Watsons strives to transition to online shopping to make up for the loss of offline sales. but the overall performance is still worse than before the epidemic. The rest of Asia contributed 16 per cent of its income and did not perform well in the face of increased competition. Similar to the Chinese market, the rapid rise of ecommerce platforms such as Lazada, Shopee and GoTo has also split Watsons' Asian business.

Infrastructure business: it mainly includes a 75.67 per cent stake in 01038.HK and other infrastructure companies, which in turn owns Power Assets (00006.HK) and HK Electric Investments and HK Electric Investments-SS (02638.HK). In 2021, the revenue from infrastructure business reached HK $56.1 billion, an increase of 6% over the same period last year, an increase of 10% over 2019, accounting for 13% of the company's contribution of HK $29.6 billion, an increase of 2% over the same period last year, an increase of 4% over 2019, and a proportion of 27% of the company's EBITDA. The dividend payout of CKI has grown steadily, with a dividend yield of 5.0% in 2021.

CKI's main projects are in the UK, Australia and Europe, and its performance in 2021 was affected by the increase in the UK corporate income tax rate and the rescheduling of some projects and the UK government's profit regulation, but there are no regulatory projects in 2022. It is expected to improve steadily. The businesses of CKI have the characteristics of public utilities and a certain degree of monopoly, with stable revenue, profit and cash flow. A series of new projects have also begun to contribute stable income to CKI, coupled with a large one-time income from possible asset sales, helping to pay dividends.

Telecommunications business: under the CKHGT framework, Hutchison Telecom Hong Kong (00215.HK) covers six countries, including Britain and Italy, and Hutchison Telecom Hong Kong (Hutchison Telecom Hong Kong). In addition, Hutchison Telecom Asia covers Indonesia, Vietnam and other countries. In 2021, CKHGT business revenue reached HK $92.6 billion, an increase of 2% over the same period last year, down 1% from 2019. The proportion of contributing companies reached HK $43.1 billion, down 11% from the same period last year, up 22% from 2019 and accounting for 39% of the company's EBITDA. Hutchison Telecom's revenue in Asia was HK $8.8 billion, down 4 per cent from a year earlier and 2 per cent lower than in 2019. 2 per cent of the company's revenue remained stable at HK $2 billion, down 6 per cent from 2019 and accounting for 2 per cent of the company's EBITDA.

European Group 3 is the third largest telecom operator in Italy and the fourth largest in the UK. Although the overall revenue has remained stable in recent years, the penetration rate of mobile users in Europe has been high, and competition in the stock market has become increasingly fierce. Although European 3 groups actively deploy 5G or boost ARPU, the upgrade of 5G will require continuous capital investment and huge amortization will also lead to profit pressure. In this context, telecommunications companies with greater economies of scale are expected to enjoy certain advantages. Telecom operators in Britain and Italy are experiencing vertical and horizontal cooperation, and the European three groups also hope to participate in it. If they can build economies of scale, it will help to ease the pressure of 5G construction capital expenditure and market competition. In addition, CK Hutchison has also adopted the strategy of selling tower recovery funds in recent years, and the company expects the sale of British tower assets at a price of HK $32.4 billion to be completed in the second half of 2022.

The foreign minister and another business are financial and investment income, which mainly includes the shareholdings of Hutchison Whampoa China, CenovusEnergy, TOM Group, Marina, Cheung Kong Life Technologies and Hutchison Telecom Australia.

There is an obvious discount in the valuation of the company: CK Hutchison, as a holding company holding diversified business, has a significant holding discount compared with the market value of his companies. CK Hutchison's market capitalization vs book value has also been discounted for a long time, expanding from 38 per cent in 2016 to 70 per cent in 2021, with an average discount of 55 per cent over the past five years. Although most other Asian integrated holding companies have discounts, CK Hutchison's valuation is also much lower than the weighted average valuation of comparable companies in Asia from a relative valuation point of view. For the reasonable market capitalization of long sum, we choose the following two methods to compare each other:

1) Total market value of its companies: the market value of CK Hutchison's listed companies was HK $198.6 billion on May 13, 2022, together with the equity value of Watsons Group and Wind Tre, the Italian telecom company, CK Hutchison's stated equity value has reached HK $371 billion. We refer to the discount of vs book value of large integrated business holding companies in the history of the Hong Kong market, generally around 20-30 per cent, corresponding to a market capitalization of HK $2597-HK $296.8 billion (HK $67.7-HK $77.4 per share). Compared with CK Hutchison's closing market capitalization of HK $209.4 billion on May 13, there is a discount of at least 19-29 per cent.

2) valuation of SOTP segment: we value CK Hutchison's port and telecommunications business using comparable company EV/EBITDA, retail business using comparable company EV/Sales, and infrastructure and financial and investment businesses with direct reference to the market capitalization of long-term and shareholding listed companies. We also give the Hong Kong market a 20-30 per cent discount on the holding company, resulting in a market capitalization of HK $3061-349.8 billion (HK $79.8-HK $91.20 per share) for CK Hutchison, which closed at HK $209.4 billion (HK $54.60 per share) on May 13, with a 32-40 per cent discount on the share price.

Taken together, we estimate that Changhe's corresponding market capitalization ranges from HK $2597 to HK $349.8 billion (HK $67.7-HK $91.20 per share), with an overall discount of 19-40 per cent compared with CK Hutchison's current market capitalization.

Risk factors: the growth of the world economy is lower than expected; the negative impact of the global epidemic is stronger than expected; the negative impact of geopolitical factors on the economy and exchange rate; it is difficult for companies to continuously find high-quality investment opportunities; the company's retail business is further affected by online e-commerce; the company's telecommunications operations are affected by increased competition.