Making the right moves for shareholder benefits

Hong Kong's retail market scene has also been clouded by the adoption of a mandated minimum wage and, coupled with the possibility of the standard working hour legislation, could raise labor costs for supermarket chains.

Amid the highly developed market and the anticipated rising cost of doing business, it is reasonable for HWL to consider exiting the mature supermarket chain business and moving on to other business assets with high growth potential, say analysts.

They say the sale of PARKnSHOP could fetch between HK$23.4 billion to HK$31.2 billion, based on the valuation of another supermarket chain, Wellcome, controlled by Dairy Farm International Holdings Ltd, listed in Singapore.

In addition, the proceeds from the PARKnSHOP sale could also provide adequate ammunition for HWL to pursue aggressive overseas business asset acquisitions. If PARKnSHOP can be sold at $4 billion, it will mean that the local supermarket chain can be valued at a multiple of 1.4 times sales, higher than the local-listed Wumart Stores Inc's 1.1 times multiple, but less than Wellcome's 1.65 times multiple, according to Bloomberg data.

Li has already sold many mature business assets to unlock much-needed cash to fund future business growth. In 2011, HWL booked a gain of HK$44.3 billion from packaging its ports assets in the Pearl River Delta region into Hutchison Port Holdings Trust, which is listed in Singapore.

Data compiled by Bloomberg show the company has announced $4.7 billion of asset acquisitions in the past two years, indicating the conglomerate is ready to snap up more overseas low-priced assets.

"After the economic recession in the last few years, there are many cheap business assets in Europe. Acquiring cheap European business assets is a proven diversification strategy for HWL to expand in those profitable businesses," says Patrick Shum, investment manager of Tengard Fund Management Investment.

"Moreover, the extraordinary gain from the PARKnSHOP sale can help lift the profit level of HWL by giving a one-off gain to the conglomerate."

The ports-to-telecommunications conglomerate has been on a shopping spree in Europe since the start of the global financial crisis of 2008, particularly eyeing European telecommunication and infrastructure assets that can fuel profit growth in the coming years.

HWL in June agreed to buy Telefonica SA's O2, Ireland's second-largest mobile operator, for 850 million euros ($1.1 billion). The conglomerate also held talks with Telecom Italia SpA for a potential merger of their Italian mobile-phone assets.

In January this year, the conglomerate said its subsidiary Hutchison 3G Austria completed the acquisition of the whole business of Orange Austria from Mid Europa Partners and France Telecom-Orange.

Starting from 2010, HWL has been more aggressive in clinching various overseas infrastructure business assets. In June this year, HWL's listed subsidiary Cheung Kong Infrastructure Holdings Ltd (CKI) acquired a waste-management business in the Netherlands. In January this year, CKI also expanded into New Zealand's waste-management business.

In September 2012, CKI acquired a renewable energy power transmission business in Australia. It also held substantial interests in the UK water utility businesses after it purchased the UK Wales & West Utilities and Northumbrian Water Group in 2011 and 2012.

"The European infrastructure assets can bestow more stable investment returns to the group in the long run. That is why HWL is eager to join the bandwagon now," says Dickie Wong, director of Hong Kong-based Kingston Securities Research.

"Selling PARKnSHOP at a good price might be a quick way to cash in, rather than listing the chain," Wong says. "This is because mainland-based supermarket operators may bid for the PARKnSHOP supermarket chain at a higher price than HWL expects in order to enter the Hong Kong grocery retail market."

The exit from the Hong Kong grocery retail business can also help HWL focus more on its health and beauty retail operations, which have a bigger global footprint and offer higher margins compared with the supermarket business.