Hutchison Port Holdings Trust

OSK-DMG Research, July 31

AS Hutchison Port Holdings Trust's (HPHT) H1 FY2013 earnings fell short of forecasts, we are slashing our FY2013 estimate by 12 per cent. Earnings fell 15.4 per cent y-o-y (Q2 FY2013: down 25.2 per cent y-o-y, down 2.6 per cent q-o-q), making up only 39.5 per cent of our initial full-year forecast.

The contraction was largely attributed to the 2.1 per cent dip in 1H FY2013 total throughout, a result of weak EU and US trade, as well as a strike by its unionised workers.

This caused a 0.9 per cent drop in revenue during the period, further exacerbated by the higher costs relating to the strike in April and May. Management has agreed to a 9.8 per cent increase in salary to meet the union's demands.

Meanwhile, the lower earnings led to the group's Q2 FY2013 distribution per unit (DPU) shrinking 22.2 per cent y-o-y to HK$0.187 (S$0.031). HPHT is trying to meet the lower range of its DPU guidance of HK$0.40 to HK$0.51.

Box trade in the EU and the US remained weak as the 2.3 per cent YTD growth at Yantian Port was largely boosted by intra-Asia trade. This cushioned the contraction at HPHT's ports. HIT, ACT and Cosco-HIT saw combined volume contracting 5.6 per cent YTD in 1H FY2013.

To some extent, Yantian saw a rise in the number of transshipment boxes owing to the strike at Hong Kong International Terminal (HIT), while ACT, which was acquired in Q1 FY2013, captured additional volume diverted from HIT.

With the advent of the peak season, management hopes to see flat growth y-o-y for Hong Kong terminal in FY2013, while Yantian port may see 3-4 per cent growth, since box trades to/from EU and US remain weak.

We maintain a "neutral" on HPHT. We are cutting our projections due to the lower throughput. We expect throughput to improve come FY2014, but management has yet to provide any guidance.

We trim our FY2013/FY2014/ FY2015 earnings by 12/10/9 per cent respectively, on assuming lower volume and cut our staff cost per TEU (20-foot equivalent unit) as our estimates were above management's guidance.

We cut our fair value to US$0.79 (from US$0.82), based on 8 per cent cost of equity on DDM (dividend discount model) valuation. The attractive 6.4 per cent dividend yield lends share price support.

NEUTRAL