Kim Eng on 8 Mar 2013
Light on details, but a positive. Hutchison Port Holdings Trust (HPHT) announced the acquisition of the entire stake in Asia Container Terminals (ACT) for a total cash consideration of HKD3,167m (USD408m) from DP World (55%) and PSA (45%). HPHT also procured the payment of HKD750m (USD97m) in ACT’s loans owed to DPW and PSA’s affiliates. All these would be financed entirely from a term loan facility agreement. We view this acquisition positively for three reasons: 1) it alleviates capacity constraints to growth in HK for HPHT, 2) HPHT expects the acquisition to be accretive to DPU, and 3) ACT is already an ‘overflow’ port for HPHT, and is hence tried and tested.
Look to cashflow instead of NTA. ACT’s NTA as of 31 Dec 2012 was HKD625m (USD81m). This implies a ~5x multiple of the acquisition price over NTA and looks demanding at first glance. However we believe this should not be used as a benchmark of value to HPHT despite the scant details revealed in the announcement. We instead prefer looking at the ACT acquisition from a discounted cashflow point of view, which, together with the above-mentioned financing rates were not disclosed in the announcement. Free cashflow is the pivotal metri to the investment thesis of HPHT being a strong yield play. For this, we
take comfort from HPHT’s expectations of DPU accretion from this deal.
2 more berths at HK. There are key geographical details and available facilities for ACT, which feature 2 berths of 15.5m depth, and with lease expiry in 2047 (34 years’ time, similar to rest of
HPHT berths).
Reiterate BUY as strong yield play. HPHT remains a strong yield play in our view, with distribution yields of 7-8% p.a. without including the ACT acquisition. We prefer to maintain our forecasts and adjust them
once more details such as financing terms and ACT cashflow are made available – any DPU accretion remains as upside for now. HPHT remains a BUY, TP unchanged at USD0.93.
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