Hutchison Port Holdings Trust

Kim Eng on 4 Oct 2012

Sustainable yield of 9%; initiate with BUY. Hutchison Port Holdings Trust (HPHT) is a business trust holding container port assets in Hong Kong and Yantian, providing stevedorage and other port services to global shipping lines. We initiate coverage of HPHT with a DDM-derived target price of USD0.925 and a BUY recommendation. A sustainable distribution yield of 8.4-9.1% p.a. is far too attractive to ignore, especially given HPHT’s earnings resilience and capacity for further growth.

Resilient throughput growth. While HPHT’s portfolio ports have shown strong historical throughput CAGR of ~10% p.a. from 1993 to 2011, it also demonstrates resilience in times of global crises. Volume declines in crisis-hit 2008 and 2009 were marginal, at -1% and -4% YoY. Following the crisis, volumes in 2010-11 rebounded to an average CAGR of 10%, more than making up for the volume declines of the two prior years. We think HPHT remains well poised for a recovery based on recent stimulus measures from the EU and US Fed.

Looking favourably upon this fallen angel. HPHT’s share price has been depressed since its IPO at USD1.01 in Mar 2011, declining ~26% to date. A mispriced IPO and, more recently, concerns about economic growth in China and HK, were said to have been contributing factors. However, we think that current pricing levels, which imply yields of 8.4- 9.1%, are attractive vis-à-vis its regional peers, REITs and other business trusts, adding to its compelling investment case.

Underappreciated by the market: BUY. HPHT remains one of the largest holders of container port assets made available to investors who have an interest in dividend yield plays. Its current depressed price provides a rare opportunity to own a resilient business which would also be a beneficiary of a global economic recovery.  Initiate coverage with BUY.  Our target price of USD0.925 provides 24% upside in addition to stable dividend yields of 8.4-9.1% p.a..