CK Hutchison-Quick Take:Assessing impacts from Brexit

　　Event

　　With 52% for "Leave" and 48% for "Remain" in the EU referendum vote on 24 June, the UK has voted to leave the Europen Union. London and Scotland voted strongly to stay within the EU but that was not enough to make up for the poor results in the north of England. The turnout rate was high at 71.8%.

　　Even with a leave vote, Britain will not immediately cease to be an EU member. The exit process could take a minimum of two years, according to BBC News.

　　Takeaways

　　Immediate impact on CKH from Brexit will be most felt in currencies. CKH had 34%/37% EBITDA/EBIT exposure to the UK as of end 2015, mainly through infrastructure, telecom and retail businesses. We expect operations to remain unaffected in case of Brexit. However, the resulting volatilities of the pound is likely to negatively impact CKH's earnings as well as our NAV estimates.

　　2016 net profit and NAV likely to be lowered by 5%/4%. Credit Suisse global FX team estimated earlier this year (Link to report) that in case of Brexit, the GBPUSD exchange rate could fall to 1.2 (-15% from current level). Based on this assumption, our 2016 net profit and NAV estimate for CKH could be lowered by 5%/4% respectively. We will fully update our numbers following updates from our global FX team later today.

　　Longer term, investment in the UK will be re-evaluated post Brexit. Faced with the economic and political uncertainties arising from Brexit and the lengthy exit process, we expect the group to re-evaluate its investment decisions in the UK and wider Europe. Mr Li ka-shing, chairman of the group, said in an interview with Bloomberg earlier this month, voiced concerns over Brexit but said the group's investment in the UK and Europe will continue regardless of the result of the vote (Link to the interview).