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Put together Asia's richest man, the world's third-biggest container port plus a bitter strike now in its fourth week, and a 4 per cent share price fall looks like an under-reaction. Striking dockworkers this weekend protested outside the home of Li Ka-shing, whom they hold responsible, while one of his senior officials likened their tactics to those of the Cultural Revolution. Gauging the long-term significance of strikes is never easy, but fights like this one deserve attention.
Maybe some investors are lost trying to understand who is being affected. The strikers are employees of two stevedoring groups who contract to a subsidiary of HPH Trust, the beneficiary of the Hong Kong and Shenzhen port assets of Hutchison Whampoa Ltd., the conglomerate chaired by Mr Li. HPHT, which was spun out of Hutchison Whampoa two years ago, has lost 4 per cent since the strike began. Hutchison Whampoa, which holds 28 per cent of the trust, is off less than 2 per cent.
Financially, the industrial action has not yet made a big dent. Handling capacity is back above 80 per cent, having halved in the strike's early days. The hit could be less than 1 per cent of full-year earnings before interest, tax, depreciation and amortisation, says Citigroup. But adding up lost capacity underplays longer-term risks. If the strikers achieve anything near their 20 per cent demands – HPHT has offered 7 per cent – the higher wage bill could lift costs by 4 per cent, according to CLSA. That starts to eat into the flexibility of contract labour, which makes up about two-thirds of HPHT's Hong Kong workforce and more than a third of costs. It usually pays investors to wait and see where strikes settle.
But HPHT's subsidiary summed up the risks when it called on strikers last week to understand the challenges the port faces. Investors should look at those too. A rising cost base on top of China's slowing export growth is something to pay attention to.