Hutchison Port Holdings Trust

DMG & PARTNERS SECURITIES on June 18 2012

LATEST throughput data released by Cosco Pacific for Yantian and COSCO-HIT contained no major surprises and YTD volume growth were within our estimates. Yantian saw stronger growth of 5.1 per cent year-on-year (y-o-y) in May 2012, lifting its YTD May volume growth to 2.1 per cent y-o-y. At COSCO-HIT, throughput rose 1.7 per cent y-o-y in May 2012, slightly higher than the overall throughput growth at Kwai Tsing terminals, which came in at 0.6 per cent y-o-y. Maintain "neutral" on HPH Trust with an unchanged discounted cashflow-derived TP of 78 US cents. Our FY12F DPU estimate (6.07 US cents) is 8 per cent below management's guidance and implies a yield of 8.37 per cent based on its last closing price.

Solid throughput growth in May from Yantian in China: May 2012 throughput volumes at Yantian grew 5.1 per cent y-o-y, bringing YTD May 2012 volume growth to 2.1 per cent y-o-y. The robust growth is consistent with management's guidance in its Q1 FY12 results briefing. YTD throughput growth is still running below our full-year estimate of 3 per cent in FY12 for Yantian but we believe a stronger rebound in the subsequent months will lift growth in line with our expectations.

Slower growth at Kwai Tsing but HIT should perform better: Throughput volumes at Kwai Tsing terminals grew at a slower pace of 0.6 per cent y-o-y in May (compared to 6.8 per cent in February, 6.5 per cent in March and 0.7 per cent in April). YTD May 2012 throughput rose 2.9 per cent y-o-y. We believe HIT should perform better than other ports in Hong Kong given its strong market position: in Q1 FY12, HIT registered 9.4 per cent y-o-y throughput growth versus 4.6 per cent for Kwai Tsing. We maintain our estimate of 6.0 per cent throughput growth for HIT in FY12.

Valuation: Maintain "neutral" with a TP of 78 US cents. We made no changes to our throughput volumes and earnings estimates. Our DCF-derived TP is based on 8 per cent weighted average cost of capital (WACC) and 2 per cent long-term growth until the expiry of the concessions. 
NEUTRAL