Hutchison Port Holdings Trust

OCBC on 23 Jul 2015

2Q15 PATMI came in at HK$399.9m, up 8.5% YoY mostly due to good cost-side management and the positive impact of tariff increases, partially offset by higher taxes. While the quarter’s results showed respectable YoY growth, it came in below consensus and our expectations, with 1H15 PATMI constituting 39.7% of our full year forecast. Management struck a relatively cautious tone regarding their outlook for volume growth for 2H15 given the weak EU market and will continue their focus on controlling costs and tariff improvements. An interim distribution per unit for 1H15 of 15.7 HK cents was proposed. Given the weaker than expected results this quarter, our fair value estimate dips to US$0.63 from US$0.68 previously as we update our valuation model. Maintain HOLD.

Decent growth but below expectations
2Q15 PATMI came in at HK$399.9m, up 8.5% YoY mostly due to good cost-side management and the positive impact of tariff increases, partially offset by higher taxes. In terms of the topline, 2Q15 revenues increased 2.1% YoY to HK$3,127.9m. While the quarter’s results showed respectable YoY growth, it came in below consensus and our expectations, with 1H15 PATMI constituting 39.7% of our full year forecast. That said, we are expecting the trust’s performance to strengthen in 2H15 as positive US cargo trends continue and the impact of tariff increases kicks in further. An interim distribution per unit for 1H15 of 15.7 HK cents was proposed.

TEU uplifts from tariff increases
2Q15 container throughput at HIT (Hong Kong International Terminals) decreased 2.5% YoY, mostly due to weaker intra-Asia and transshipment cargoes, while throughput at YICT (Yantian International Container Terminals) increased 4.0% YoY as growth in the US strengthened and more empty cargoes were handled. Average TEU in Hong Kong increased 5.5% YoY given tariff increases and improved throughput mix from liners; similarly, average TEU for China increased 0.7% YoY due to tariff increments. 

Management cautious about volume growth in 2H15
Management struck a relatively cautious tone regarding their outlook for volume growth for 2H15 given the weak EU market and will continue their focus on controlling costs and tariff improvements. While the outbound cargoes to the US continued to show an upward trend, the decline in the EU space has been more severe than anticipated. Given the weaker than expected results this quarter, our fair value estimate dips to US$0.63 from US$0.68 previously as we update our valuation model. Maintain HOLD.

Hutchison Port Holdings Trust

OCBC on 28 Apr 2015

HPHT reported 1Q15 PATMI of HK$285.8m, which decreased 48.9% YoY mostly due to the absence of a one-time HK$243.8m gain recognized in the same period last year. Adjusting for this one-time item, management indicated that 1Q15 PATMI would have dipped 9% YoY. In terms of the topline, 1Q15 revenues were mostly flat at HK$2948.5m, up 0.1% versus HK$2944.5m in 1Q14. We judge this set of results to be broadly in line with expectations. With regards to tariff increases, management also updates that it expects to achieve a 4% to 6% increase – in line with our expectations and what had been previously guided – and these will be retroactively applied from 1 Jan 2015 when negotiations are completed. We note, however, that only half of the trust’s customers will be subjected to the tariff increase this year. Maintain HOLD with an unchanged fair value estimate of US$0.68.

1Q15 PATMI decreased YoY due to absence of one-time gain
HPHT reported 1Q15 PATMI of HK$285.8m, which decreased 48.9% YoY mostly due to the absence of a one-time HK$243.8m gain recognized in the same period last year. Adjusting for this one-time item, management indicated that 1Q15 PATMI would have dipped 9% YoY. In terms of the topline, 1Q15 revenues were flat at HK$2948.5m, up 0.1% versus HK$2944.5m in 1Q14. Over the quarter, the container throughput of HIT was mostly unchanged YOY while throughput at YICT increased 10.0% primarily due to the growth in US, transshipment and empty cargoes. The average revenue per TEU in HK was also higher than last year due to tariff increases but partially offset by unfavorable throughput mix from liners. In China, the average revenue per TEU decreased YoY due to a higher empty/laden container mix. We judge this set of results to be broadly in line with expectations; 1Q15 revenues and PATMI constitute 21.3% and 11.1% of our full year forecasts, respectively, but we expect the trust’s numbers to improve over the remainder of the year with tariff increases and continued strength in US cargo trends. 

US outbound cargoes continue to grow
In 1Q15, outbound cargoes to the US continued to grow in 1Q15 but outbound volumes to the EU remain muted. Management expects these trends to persist in 2Q15 as the fundamentals of the US economy are likely to stay firm while a high unemployment rate and fragile consumer sentiments continue to weigh on the EU’s recovery. With regards to tariff increases, management also updates that it expects to achieve a 4% to 6% increase – in line with our expectations and what had been previously guided – and these will be retroactively applied from 1 Jan 2015 when negotiations are completed. We note, however, that only half of the trust’s customers will be subjected to the tariff increase this year. Maintain HOLD with an unchanged fair value estimate of US$0.68.

Hutchison Port Holdings Trust

OCBC on 9 Feb 2015

HPHT swung to a 4Q14 loss (after taxes and minority interest) of HK$18,610.0m, versus a profit of HK$334.8m in the same period last year. This was mainly due to a HK$19b impairment charge on goodwill allocated to a cash-generating unit in Hong Kong which was adversely impacted by uncertainties in the global economy, challenging trading environment and labor cost pressures. Excluding the impairment charge, adjusted net profit after tax for FY14 was HK$2,981.7m (down 0.7% mainly due to higher taxes), which constitutes 101.7% of our full year forecast and is within expectations. FY14 distribution per unit is 41.0 HK-cents and management has guided for FY15 DPU to dip to 33-36 HK-cents, below the consensus of 38.6 HK-cents. Management reports that it is still in discussions with the shipping lines regarding tariff increases and sees a mid-low single digit percentage increase. We note that unitholder’s NAV per unit (after deducting DPU for both years) has dipped significantly from HK$7.26 (end FY13) to HK$4.86 (end FY14) and believe the share price will likely react negatively to the impairment charge and lower DPU guidance. Maintain HOLD with an unchanged fair value estimate of US$0.68.

Hit by HK$19b one-time impairment charge
HPHT swung to a 4Q14 loss (after taxes and minority interest) of HK$18,610.0m, versus a profit of HK$334.8m in the same period last year. This was mainly due to a HK$19b impairment charge on goodwill allocated to a cash-generating unit in Hong Kong which was adversely impacted by uncertainties in the global economy, challenging trading environment and labor cost pressures. Excluding the impairment charge, adjusted net profit after tax for FY14 was HK$2,981.7m (down 0.7% mainly due to higher taxes), which constitutes 101.7% of our full year forecast and is within expectations. FY14 distribution per unit is 41.0 HK-cents; but management has guided for FY15 DPU to dip to 33-36 HK-cents, below the consensus of 38.6 HK-cents.

Outbound cargoes to EU remained soft in 4Q14
In terms of the topline, FY14 revenue increased 1.9% to HK$12,622m as throughput at HIT increased 2.1%, mostly due to higher transshipment volume but partially offset by weaker intra-Asia cargoes. At YICT, throughput was up 8.1% YoY due to higher transshipment volume, US and empty cargoes. Average revenue per TEU increased YoY in HK, but decreased in China given the higher proportion of transshipment throughput handled. While outbound cargoes to the US remain firm, volumes to the EU continue to soften in 4Q14. Management reports that it is still in discussions with the shipping lines regarding tariff increases and sees a mid-low single digit percentage increase. While the impairment is a non-cash item and will not affect the trust’s cash flow generation and debt servicing ability, we note that unitholder’s NAV per unit (after deducting DPU for both years) has dipped significantly from HK$7.26 (end FY13) to HK$4.86 (end FY14), and believe the share price will likely react negatively to the impairment charge and lower DPU guidance. Maintain HOLD with an unchanged fair value estimate of US$0.68.

Hutchison Port Holdings Trust

OCBC on 28 Oct 2014

HPHT reported 3Q14 PATMI of HK$490.7m (EPU: 5.63 HK-cents), which dipped 9.0% YoY mostly due to continued cost pressures and a higher effective tax rate after YICT’s tax credit was used up in 4Q13; partially offset by HK$30m of exchange gains from RMB-denominated monetary assets. Accounting for divestment gains, we estimate that 9M14 PATMI constitutes 76.3% of our full year forecast, which we judge to be mostly within expectations. Maintain HOLD with an unchanged fair value estimate of US$0.68. While conditions remain mixed due to an uncertain outlook and persistent cost pressures, we see the downside to be limited here due to an attractive FY14F dividend yield of 8.0%. A potential positive catalyst could also come in the form of higher-than-expected tariff increases ahead.

3Q14 earnings in line with expectations
HPHT reported 3Q14 PATMI of HK$490.7m (EPU: 5.63 HK-cents), which dipped 9.0% YoY mostly due to continued cost pressures and a higher effective tax rate after YICT’s tax credit was used up in 4Q13; partially offset by HK$30m of exchange gains from RMB-denominated monetary assets. Accounting for divestment gains, we estimate that 9M14 PATMI constitutes 76.3% of our full year forecast, which we judge to be mostly within expectations. The trust reported 3Q14 revenues at HK$3,422.0m, up 1.7% mostly due to higher container throughput at HIT and YICT.

Outbound cargoes to the EU slowed over latest quarter
While outbound cargoes to the US continued its uptrend in 3Q14, we saw a slowdown in the outbound volumes to the EU due to a decline in demand and weaker new orders. Over the quarter, YICT’s throughput increased 12.4% YoY as transshipment and US cargoes grew, and throughput at HIT similarly increased 2.1% due to higher transshipment volume, offset in part by weaker intra-Asia cargoes. 3Q14 average revenue per TEU in HK grew YoY due to favorable throughput mix from liners while average revenue per TEU in China fell due to a higher mix of transshipment throughput handled.

Starting tariff negotiations with shipping lines
Maintain HOLD with an unchanged fair value estimate of US$0.68. While conditions remain mixed due to an uncertain outlook and persistent cost pressures, we see the downside to be limited here due to an attractive FY14F dividend yield of 8.0%. A potential positive catalyst could also come in the form of higher-than-expected tariff increases ahead. We understand that HPHT is starting negotiations with the shipping lines though management has indicated that they expect clients to be resistant to a sizeable increase due to profit headwinds currently. HPHT also clarified that discussions are still in an early stage and more color on the magnitude of the increase could come in 4Q14.

Hutchison Port Holdings Trust

OCBC on 29 Jul 2014

2Q14 PATMI came in at HK$368.4m (EPU: 4.23 HK-cents), which decreased 12.4% YoY mostly due to continued cost pressures and lower contributions from ACT given the divestment of a 60% stake last quarter. Accounting for divestment gains, we estimate that 1H14 PATMI constitute 47.1% of our full year forecast, which we judge to be mostly within expectations. In terms of the topline, the trust reported 2Q14 revenue of HK$3063.9m, up 1.0% due to higher container throughput at HIT and YICT, offset by the absence of ACT contributions as it become an associated company after the stake sale. The trust declared an interim DPU of 18.70 HK cents for 1H14. Maintain HOLD with an unchanged fair value estimate of US$0.68. While conditions remain mixed due to an uncertain outlook and persistent cost pressures, we see the downside to be limited here due to an attractive FY14F dividend yield of 7.4%.

1H14 interim DPU at 18.70 HK-cents
2Q14 PATMI came in at HK$368.4m (EPU: 4.23 HK-cents), which decreased 12.4% YoY mostly due to continued cost pressures and lower contributions from ACT given the divestment of a 60% stake last quarter. Accounting for divestment gains, we estimate that 1H14 PATMI constitute 47.1% of our full year forecast, which we judge to be mostly within expectations. In terms of the topline, the trust reported 2Q14 revenue of HK$3063.9m, up 1.0% due to higher container throughput at HIT and YICT, offset by the absence of ACT contributions as it become an associated company after the stake sale. The trust declared an interim DPU of 18.70 HK cents for 1H14.

Higher throughput at group’s deep-water ports
The trust reported that outbound cargoes both to the US and EU continued their uptrends in 2Q14. The throughput of HPHT’s deep-water ports in 1H14 increased ~6%, with throughput at HIT and YICT growing 3.7% and 4.9%, respectively. YICT’s throughput growth was driven by transshipment and US cargoes, while HIT’s higher throughput was due to higher transshipment volume, partially offset by weaker intra-Asia cargoes. The average revenue per TEU for HK and China was mostly flat YoY; fewer concessions were granted to some liners for China which was offset by a higher proportion of transshipment throughput handled.

Maintain HOLD with unchanged US0.68 FV
Over the quarter, we continue to see upward pressure in terms of cost of services rendered, which increased 9.8% YoY due to higher external contractor costs and inflationary pressures while staff cost also increased 7.7%. 1H14 capex is up 64% to HK$643m, as management continues its expansionary plans at Yantian to add one berth each year from 2015. Maintain HOLD with an unchanged fair value estimate of US$0.68. While conditions remain mixed due to an uncertain outlook and persistent cost pressures, we see the downside to be limited here due to an attractive FY14F dividend yield of 7.4%.

Hutchison Port Holdings Trust

OCBC on 29 Apr 2014

HPHT reported 1Q14 PATMI of HK$558.9m (EPU: 6.42 HK-cents), which increased 47.0% YoY mostly due to a one-time HK$243.8m gain from the divestment of a 60% stake in ACT. Accounting for this impact, we estimate that 1Q14 PATMI would have constituted 24.1% of our full year forecast, which we judge to be mostly within expectations. 1Q14 revenues came in at HK$2944.5m, up 2.7% due to ACT’s contributions (acquired in Mar-13), a 1.9% YoY increase in YICT’s throughput and higher average revenue per TEU for HIT and YICT, but partially offset by HIT’s throughput dipping 6% YoY. The trust also reported an uptrend for outbound cargoes to the US and the EU – a major factor determining total container volume handled by HPHT – and management notes that growth outlooks in the US and the Eurozone remain favorable. We update our valuation model for the latest data-points and our fair value estimate increases marginally to US$0.68 from US$0.63 previously. Maintain HOLD.

Boost from divestment gain of ACT stake
HPHT reported 1Q14 PATMI of HK$558.9m (EPU: 6.42 HK-cents), which increased 47.0% YoY mostly due to a one-time HK$243.8m gain from the divestment of a 60% stake in ACT. Accounting for this impact, we estimate that 1Q14 PATMI would have constituted 24.1% of our full year forecast, which we judge to be mostly within expectations. In terms of the topline, 1Q14 revenues came in at HK$2944.5m, up 2.7% due to ACT’s contributions (acquired in Mar-13), a 1.9% YoY increase in YICT’s throughput and higher average revenue per TEU for HIT and YICT, but partially offset by HIT’s throughput dipping 6% YoY. Management indicates the increase in average revenues per TEU in HK was due to more favorable mix of containers from liners, whereas the increase in China was due to fewer concessions to liners and a lower empty/laden container ratio. 

Outbound cargoes to US and EU showing uptrend
The trust reported an uptrend for outbound cargoes to the US and the EU – a major factor determining total container volume handled by HPHT – and management notes that growth outlooks in the US and the Eurozone remain favorable. That said, we continue to see upward pressure in terms of cost of services rendered, which increased 11.0% YoY due to higher external contractor costs and inflationary pressures. Capex in 1Q14 also rose 27% YoY to HK$311m, and management indicates that it would revive expansion plans to add one berth each year at Yantian from 2015.

Maintain HOLD
We update our valuation model for the latest data-points and our fair value estimate increases marginally to US$0.68 from US$0.63 previously. While conditions remain challenging due to a mix of rising labor costs and taxation increases, we see the downside to be limited here due to an attractive FY14F dividend yield of 8.1%. Maintain HOLD.

Hutchison Port Holdings Trust

DBS Vickers Research, Feb 12

Q4-FY13 operating results for Hutchison Port Holdings Trust were below (expectations), but H2-FY13 DPU (distribution per unit) of 22.3 HK cents was better than expected.

The trust is looking to deliver at least stable DPU in 2014, driven by expected operating profit improvement as a result of mid-single digit volume growth.

There were signs of improvement in US/EU trade flows, and we look for a 3-4 per cent volume growth in FY14 in the trust's ports.

We maintain our view that the worst is over for HPHT and reiterate our "buy" call. While we should see improving HK operations and a mild uptick in throughput volumes next year, higher operating costs (including staff costs) and higher taxes will impact longer term valuations and hence, we cut our target price to US$0.76 (previously US$0.80) to account for the above.

HPHT is a proxy to global recovery theme, and prospective yield of 8.2 per cent for FY14 is attractive.

BUY

Hutchison Port Holdings Trust

OCBC on 12 Feb 2014

HPHT reported 4Q13 earnings results that were lower than ours and the street’s expectations due to one-off items: (1) concession to shipping lines after previous industrial action at HIT, (2) write-off of an upfront fee after the US$3.6b bank loan refinancing, and (3) exchange loss from the conversion of USD to HKD for repayment of bank loan for the ACT acquisition. Revenue for 4Q13 fell 0.8% YoY to HK$3.12b. Total operating expenses for the quarter increased by 10.9% to HK$2.17b. PATMI fell 47% to HK$335m. Management is guiding mid-single digit growth in volume for its HK and Shenzhen ports, with 1-2% increase in ASP. Due to the expiry of tax holidays for some phases of Yantian, for FY14, management is guiding an effective tax rate of 19-20%, a significant increase over FY13’s 12%. Lowering our DPU forecasts, we reduce our FV on HPHT from US$0.74 to US$0.63. We maintain a HOLD rating on HPHT. HPHT is trading at a FY14F dividend yield of 8.0%.

PATMI nearly halves
HPHT reported 4Q13 earnings results that were lower than ours and the street’s expectations due to one-off items: (1) concession to shipping lines (translating into lower average revenue per TEU for HK) after previous industrial action at HIT, (2) write-off of upfront fee after US$3.6b bank loan refinancing, and (3) exchange loss from the conversion of USD to HKD for repayment of bank loan for the ACT acquisition. 4Q13 revenue fell 0.8% YoY to HK$3.12b. Total operating expenses increased by 10.9% to HK$2.17b. PAT dropped 34% to HK$644m. PATMI fell 47% to HK$335m. 4Q13 throughput volume for HIT was down 10.1% YoY, but HK throughput was down only 2% for FY13 due to the acquisition of ACT in Mar 2013. 4Q13 throughput for Yantian (Shenzhen) was up 4.7% YoY, translating into a 1% growth for FY13. The portfolio as a whole registered a 1% decline in FY13. 

FY14 guidance
Management anticipates mid-single digit growth in volume for its HK and Shenzhen ports, with 1-2% increase in ASP. Due to the expiry of tax holidays for some phases of Yantian, management foresees a tax rate of 19-20% for FY14, versus the 12% in FY13. There will also be the full year impact of the 9.8% wage increase for port workers decided on in early May 2013. Capex delayed in FY13 will be pushed over to FY14 (HK$1.5b-2.0b). FY13 DPU is 41 HK cents, and management’s internal target is to reach a similar figure for FY14. While FY13 operating profit had contracted by 9.5%, cash generated from operations expanded by 10.2%, and management says there will continue to be a gap between profitability and cash flows in FY14. 

Maintain HOLD
Lowering our DPU forecasts, we reduce our FV on HPHT from US$0.74 to US$0.63. We maintain a HOLD rating on HPHT. HPHT is trading at a FY14F dividend yield of 8.0%.

Hutchison Port Holdings Trust

UOBKayhian on 12 Feb 2014

FY14F PE (x): 27.1
FY15F PE (x): 25.4

Revenue softened 0.8 % yoy in 4Q13 and 0.3% yoy in 2013. Revenue including other income was HK$3,122m in 4Q13, -0.8% yoy, and HK$12.4b in 2013 (-0.3% yoy). Throughput in 4Q13 decreased 11.6% in HIT but increased 4.7% yoy in Yantian. The yoy decline in 4Q13 ASP in Hong Kong was due to the concession given to ship liners as compensation for the impact from a strike. ASP in YICT slightly suffered from adverse throughput mix of containers from liners.

Maintain BUY but cut target price to US$0.80 from US$0.88, based on a 3-stage DCF model and on our revised earnings estimates. 2014F dividend yield of 8.1% looks attractive among Singapore-listed trust/REITs with large market caps.

Yield Plays

AmFraser, Feb 4

HIGH-YIELDING plays such as S-Reits and business trusts have fallen out of favour among investors as the Fed begins to taper its monthly bond-buying programme.

Amid risks of a rising rate environment and potentially higher required rates of returns, we advocate a selective stance on yield plays, preferring yield counters that are able to deliver on both stability and growth.

Our top picks under our yield stocks coverage are Asian Pay Television Trust ("buy", target price: $1.04):, Frasers Commercial Trust ("buy", target price: $1.48), Hutchison Port Holdings Trust ("buy", target price: $0.85), Cache Logistics Trust ("buy", target price: $1.40) and Soilbuild Business Space Reit ("buy", target price: $0.87).

Underpinned by favourable underlying sector and macrodynamics, the aforementioned yield counters should look forward to enticing growth prospects, complementing their already defensive profile.

While we maintain our preference for yield stocks that are able to deliver growth organically, we perceive growth through acquisitions as an added bonus. Supported by comfortable debt headroom and visible acquisition pipelines, we are optimistic about the inorganic growth prospects of our top Reit picks, in particular.

We perceive minimal impact of rising interest rates on the projected distributions of the yield counters under our coverage.

Well-staggered loan maturities, manageable leverage levels along with proactive interest risk hedging strategies mean that the majority of S-Reits and business trusts should find themselves well placed to circumnavigate a higher interest rate climate.

BUY

Hutchison Port Holdings Trust

AmFraser Research, Oct 22

NORMALISED net profit after tax to unitholders down 13 per cent y-o-y. HPHT reported revenue growth of one per cent y-o-y and a decline of 8.4 per cent y-o-y in net profit (NPAT) attributable to unitholders in Q3 2013. On a year-to-date basis, HPHT recorded NPAT of $1.3 billion, which is down 16.6 per cent. After stripping out the one-off performance fee and Asia Container Terminals' acquisition-related costs, we note that the normalised y-o-y decline in NPAT to unitholders would narrow to 13 per cent.

Q3 2013 was a quarter of better fortunes for HPHT's HK terminals than its Yantian ports. Due to a stronger performance in Q3 2013, throughput growth across HPHT's Hong Kong terminals improved from -6 per cent YTD June 2013 to -4 per cent YTD September 2013. Comparatively, Yantian's YTD throughput was largely flattish, owing to lower throughput volumes of empty boxes.

Given that the US has yet to exhibit concrete signs of a turnaround as well as softer-than-expected trade conditions in Q3 2013, we taper our forecasts for Yantian from 4 per cent growth to a flattish full-year performance. On the other hand, we maintain our flat throughput growth expectation for the HK terminals. Accordingly, we lower our earnings per unit (EPU) forecast from 22.3 HK cents to 21.7 HK cents in FY2013. Our FY2013 DPU is also lowered from 41.2 HK cents to 40.3 HK cents.

Overall tax expenses YTD was 7.5 per cent lower y-o-y. This was a result of the utilisation of tax credits at Yantian and lower overall profitability. We highlight that the effective tax rate at Yantian will gradually edge up beyond FY2013 as tax concessions expire in phases. We are currently pencilling in an average tax rate of 17 per cent in FY2014, up from an estimated tax rate of 13 per cent in FY13.

On Sept 25, HPHT successfully refinanced its US$3.6 billion loan and is planning to draw down its borrowings in November 2013. The loan comprises three tranches, specifically a US$1 billion one-year loan, US$1.6 billion three-year loan and a US$1billion five-year loan. All-in interest cost on the borrowings is expected to be 2.25-2.5 per cent. On a separate note, management said it plans to issue a corporate bond to refinance its one-year US$1 billion tranche in FY2014.

This essentially means that a portion of HPHT's borrowings will be converted into fixed-rate, and thus partially hedging its overall interest rate exposure.

Maintain "buy" on FV US$0.86.

BUY

Hutchison Port Holdings Trust

OCBC on 22 Oct 2013

Hutchison Port Holdings Trust (HPHT) reported 3Q13 results that were lower than ours and the street’s expectations. Revenue climbed 1% YoY to HK$3.36b. Total operating expenses increased by 1.3% to HK$2.17b. Profit after tax fell 2.2% to HK$966m. Profit attributable to HPHT unitholders fell 8.4% to HK$539m. We lower our forecasts to -1% and 0% YoY change in 2013 throughput for HPHT’s ports in Kwai Tsing, HK and Yantian, Shenzhen respectively. Our previous forecasts were 0% and 2% growth. Our revenue forecast for FY13 thus falls to HK$12.4b from HK$12.6b. Shipping lines' formation of alliances, e.g. P3, G6 and CKYH, should continue to put pressure on transshipment volumes, especially in HK. We trim our FV for HPHT to US$0.74 from US$0.84 and downgrade HPHT from Buy to HOLD on valuation grounds. HPHT is currently trading at a FY13F dividend yield of 6.8%.

HK volume flat YoY
Hutchison Port Holdings Trust (HPHT) reported 3Q13 results that were lower than ours and the street’s expectations. Revenue climbed 1% YoY to HK$3.36b. Total operating expenses increased by 1.3% to HK$2.17b. Profit before tax fell 1.6% to HK$1.07b and profit after tax fell 2.2% to HK$966m. Profit attributable to HPHT unitholders fell 8.4% to HK$539m. According to management, for 3Q13, volume through the HPHT's HK ports was roughly flat YoY (the prior effect of striking workers has worn off) and the 9M13 volume is down 4%. Volume through Yantain (Shenzhen) was down 3-3.5% QoQ, making 9M13 volume for Yantian flat. All-in-all, the US trade is flat YoY and European volumes remains disappointing, down roughly 5%. Fully-laden export cargo for both US and Europe had registered single-digit growth in 3Q13, but empty boxes were down quite a lot YoY, affecting overall volume. 

Trimming 2013 topline forecast
We lower our forecasts to -1% and 0% YoY change in 2013 throughput for HPHT’s ports in Kwai Tsing, HK (including the increase in TEU from the acquisition of Asia Container Terminals in Mar) and Yantian, Shenzhen respectively. Our previous forecasts were 0% and 2% growth. Our revenue forecast for FY13 thus falls to HK$12.4b from HK$12.6b. Shipping lines' formation of alliances, e.g. P3, G6 and CKYH, should continue to put pressure on transshipment volumes, especially in HK. 

FY13F dividend yield of 6.8% 
Management is guiding FY13 DPU of approximately 40 HK cents, versus a previous range of 40-44 HK cents. With the adjustment of our topline and cost assumptions, we trim our FY13 dividend from 44.2 HK cents to 40.6 HK cents. HPHT is trading at a FY13F dividend yield of 6.8%. For FY14, tax rate should increase significantly because of the expiry of tax holidays for some phases of Yantian, and there will be the full year impact of the 9.8% wage increase for port workers agreed on in early May. 

Downgrade to HOLD
We trim our FV for HPHT to US$0.74 from US$0.84 and downgrade HPHT from Buy to HOLD on valuation grounds.

Hutchison Port Holdings Trust

OCBC on 27 Sept 2013

According to Dow Jones, Hutchison Port Holdings Trust (HPHT) has secured a US$3.6b refinancing loan which comprises three tranches – a US$1b one-year loan, a US$1.6b three-year loan and a US$1b five-year loan. The one-year tranche is at an interest rate of 0.6% above Libor, while the three-year and five-year tranches are 1.1% and 1.4% above Libor respectively. On a blended basis, we estimate that the interest rate cost for this loan is ~1.5%, dramatically lower than the 2.5% rate which management had previously guided. Updating our model to reflect the lower future interest expense, we raise our DDM-based FV to US$0.84 from US$0.76 and maintain a BUY rating on HPHT. We estimate that HPHT is currently trading at an attractive FY14F dividend yield of 7.9%.

Unit price up 9% since initiation
Since we initiated on Hutchison Port Holdings Trust (HPHT) on 4 Sep, HPHT’s unit price has climbed 9.0% to US$0.790 from US$0.725. We believe the increase is chiefly due to: 1) the Fed’s decision to delay tapering its bond purchases, which has given a general boost to the equity markets, and 2) positive economic data points from both Europe and the US. The service industries in the US expanded in August in the fastest pace in close to eight years (Institute for Supply Management's non-manufacturing index, 6 Sep). Markit's flash Eurozone PMI for Sep was a 27-month high (released 23 Sep).

Maintaining 2013 topline forecast
We are currently maintaining our forecasts of 0% and 2% YoY growth in 2013 throughput for HPHT’s ports in Kwai Tsing, HK (including the increase in TEU from the acquisition of Asia Container Terminals in Mar) and Yantian, Shenzhen respectively. Aug container throughput at Kwai Tsing was 1.478m TEU, down 1.7% MoM and up 1.5% YoY, while Aug container throughput at Yantian was 2.093m TEU, up 0.9% MoM and up 1.1% YoY. We believe that if the US and European economies continue to strengthen, there is potential for better volumes in 2014. 

Cheap refinancing 
According to Dow Jones, HPHT has secured a US$3.6b refinancing loan which comprises three tranches – a US$1b one-year loan, a US$1.6b three-year loan and a US$1b five-year loan. The one-year tranche is at an interest rate of 0.6% above Libor, while the three-year and five-year tranches are 1.1% and 1.4% above Libor respectively. On a blended basis, we estimate that the interest rate cost for this loan is ~1.5%, dramatically lower than the 2.5% rate which management had previously guided. 

Maintain BUY
Updating our model to reflect the lower future interest expense, we raise our DDM-based FV to US$0.84 from US$0.76 and maintain a BUY rating on HPHT. We estimate that HPHT is currently trading at an attractive FY14F dividend yield of 7.9%.

Hutchison Port Holdings Trust

OCBC on 4 Sept 2013

Hutchison Port Holdings Trust (HPH Trust) is the biggest container port operator in China’s Pearl River Delta region by throughput, with market shares of around 70% at Hong Kong’s main Kwai Tsing Port and 47% in Shenzhen. We believe that its market dominance in the Pearl River Delta puts the trust in a strong position to capture the region’s trade flows of manufacturing exports and raw material imports, including intra-Asia cargo. At the current price of US$0.725, we believe that the trust offers upside potential, including distributions, of more than 10% over the next 12 months as the recovery in the US and Europe gathers momentum. The main risk to our investment thesis in the short term is a renewed slowdown in these major economies. Still, we expect strong support for HPH Trust at its current price, given its attractive distribution yield of around 7%. Initiate with a BUY rating and target price of US$0.76.

Market leader in the Pearl River Delta
Hutchison Port Holdings Trust (HPH Trust) is the biggest container port operator in China’s Pearl River Delta region by throughput, with market shares of around 70% at Hong Kong’s main Kwai Tsing Port and 47% in Shenzhen. The business trust enjoys the backing of sponsor Hutchison Port Holdings, one of the world’s biggest port operators and a subsidiary of HK-listed conglomerate Hutchison Whampoa, headed by billionaire Li Ka-shing.

Well-placed to ride rebound in world trade
HPH Trust owns interests in four deep-water container port assets – three at Hong Kong’s main Kwai Tsing Port and one in Shenzhen – with a combined throughput of some 22.9m TEU in 2012. We believe that its market dominance in the Pearl River Delta puts the trust in a strong position to capture the region’s trade flows of manufacturing exports and raw material imports, including intra-Asia cargo. HPH Trust is also likely to be a key beneficiary of the trend by shipping companies to deploy bigger vessels as they strive for greater economies of scale; its container terminals are situated in harbours with natural deep water approaches and are equipped with advanced equipment capable of serving even the world’s biggest vessels. Overall, we believe that HPH Trust is well-placed to benefit from a rebound in international trade as the US and Europe economies recover, as well as continued growth in intra-Asia trade.

Recent price drop offers good entry point, decent upside
HPH Trust’s unit price has declined by 16% from its recent peak of US$0.86 on 2 Apr, hurt by concerns over the impact of strikes by port workers in Hong Kong in April and in Shenzhen earlier this week (both since resolved), and the weakness in the global economy. At the current price of US$0.725, we believe that the trust offers upside potential, including distributions, of more than 10% over the next 12 months as the recovery in the US and Europe gathers momentum. The main risk to our investment thesis in the short term is a renewed slowdown in these major economies. Still, we expect strong support for HPH Trust at its current price, given its attractive distribution yield of around 7%. Initiate with a BUY rating and US$0.76 target price.

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

Hutchison Port Holdings Trust

UOBKayhian on 31 Jul 2013

Revenue slid 2.6% yoy in 2Q13 and 1% yoy in 1H13. Revenue was HK$3,032m in 2Q13 (-2.6% yoy) and HK$5.9b in 1H13 (-1% yoy). Throughput in 2Q13 in HIT and Yantian fell 20.1% and 1.3% yoy respectively. The lower-than-expected throughput numbers were mainly due to the contractors’ strike in HIT, and lower transshipment and US/EU cargoes in Yantian. The favourable throughput mix of containers from liners caused the average revenue per TEU for Hong Kong to rise yoy in 2Q13. ASP was flattish yoy at Yantian due to less concessions granted to some liners but offset by output value.

Maintain BUY and target price of US$0.88, based on 3-stage DCF model. Despite the limited DPU growth going forward, our 2013F dividend yield of 7.0% looks attractive among Singapore-listed large-cap trusts/REITs. In addition, there is no asset devaluation risk for HPHT as deep-water coastline is a scarce resource.

(HPHT SP/BUY/US$0.735/Target: US$0.88)
FY13F PE (x): 23.1
FY14F PE (x): 22.4

Hutchison Port Hldgs

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.

HUTCHISON Port Holdings

AM Fraser Research on 5 Feb 2013

HUTCHISON Port Holdings (HPH) Trust, sponsored by the world's top container operator Hutchison Port Holdings, is structured as a business trust holding container port assets in Hong Kong and Yantian.

HPH Trust's core container ports are Hong Kong International Terminals (HIT) (100 per cent) and Yantian Ports (51.6-56.4 per cent), which boast market leading positions in the Pearl River Delta (PRD) region. We believe that backed by its twin pillars of growth, HPH Trust is strategically poised to leverage on PRD's growth potential.

Yantian and HIT are equipped with competitive advantages such as natural deep-water facilities, superior land and sea connectivity as well as strong operational efficiency. These asset positives have underpinned HPH Trust's resilience through the global financial crisis and, in our opinion, will continue to support its sturdy growth going forward.

Generating a sustainable stream of cash flows. HPH Trust's distributions are paid out of its operating cash flows.

Given the earnings resilience and strong cash flow generation of its portfolio assets, we are confident about the consistency of HPH Trust's distribution yield. We project a forward yield of 6.6-7.9 per cent between 2013 and 2015.

Current yield of 7.8 per cent is compelling. HPH Trust has had a dismal performance since IPO, which we believe can be attributed to its mispricing at the start. While HPH Trust has recovered some ground since then, we believe current valuations remain attractive.

The present degree of undervaluation in HPH Trust could potentially be linked to softened trade conditions in the US, EU and China. Moreover, investors may be concerned with the sustainability of HPH Trust's distribution yield on the back of company-specific factors such as rising tax rates and operating costs. The semi-annual distribution frequency of HPH Trust could have been another contributing factor as well.

The key question is whether current valuations are overpricing in these concerns and we certainly believe so.

In our opinion, HPH Trust's current valuations present an attractive entry opportunity for investors to take part in an earnings growth story as global economic recovery gathers momentum and goes full steam ahead. We initiate coverage on HPH Trust with a "buy" recommendation and a dividend discount model-derived target price of US$0.940.

BUY

Hutchison Port Holdings

Kim Eng on 4 Feb 2013

4Q results in-line, 2H2012 DPU as promised. Hutchison Port Holdings Trust (HPHT) reported 4Q results that were in line with our forecasts as FY2012 EBITDA came in at 2% above our estimates. As expected, 2H2012 DPU of HK27.19 cts /share was declared, bringing FY2012 DPU to HK51.24 cts, exactly in line with IPO prospectus projections. Although FY2013 will have a market-expected dip in DPU, HPHT remains a solid yield play (~8% p.a.) when put in perspective with S-REITs which currently trade closer to ~5% p.a. Reiterate BUY.

Deferred Capex again a hot potato. Questions were once again raised about the sustainability of FY2012 DPU levels going forward due to the fact that distributions were only achieved this year through a deferral of capex. Management stated that no further deferral of capex would be planned in 2013, and barring an extremely positive business environment, FY2013 DPU would come in at lower levels - something which is already expected by the market.

Volumes strong, HK leads the way. FY2012 volumes posted a credible 5% growth YoY: HK leading the way with a 5.4% YoY increase and Yantian posting a 3.9% YoY increase. Outlook tentative, but more positive signs now. Management sounded more optimistic about the US and Chinese economies although this will be mitigated by the uncertain European situation. They also stated that the trend of an increasing  proportion of megavessels will benefit HPHT’s ports given their natural deep water channels and scale.

Don’t miss the forest for the trees, reiterate BUY. We leave our forecasts largely unchanged, as we introduce our FY2015 estimates. As the market has already priced in FY2013’s weaker DPU, we advise investors not to miss out any further on a stock with sustainable yields of 7.6-8.3% p.a. Reiterate BUY, with DDM-based Target Price of USD0.93 implying a 20% total return including distributions.

Hutchison Port Hldgs Trust

Kim Eng on 25 Oct 2012

3Q/9M2012 results largely in line. Hutchison Port Holdings Trust (HPHT) reported 9M2012 EBITDA of HKD5.26b, that made up 73% of our FY2012 EBITDA estimates, results of which were distorted slightly by FX losses which had a total impact of ~HKD80m. Adjusting for this impact, HPHT’s 3Q2012 core EBITDA of HKD1.92b declined only marginally by 1% YoY, and was largely in line with ours and consensus expectations. 

9M2012 throughput +6% YoY, but on Transhipment cargo. HPHT recorded throughput growth of 6% YoY for 9M2012.  For 3Q2012, HIT throughput increased 5.6% YoY, while YICT throughput increased 9.7% YoY. However both HIT and YICT’s higher throughput were primarily due to the growth in Transhipment cargo, and that correspondingly affected core EBITDA margins by ~2 percentage points. We believe this effect should be mitigated when the global economy picks up, with more higher-margin O&D cargo handled.

2H2012 DPU likely in the bag. Management guided that Development Capex deferrals would keep FY2012 Capex to ~HKD700m (vs FY2012 projection of ~HKD1.2b), allowing them flexibility to maintain the FY2012 projected DPU of HKD51.2cts, barring an economic catastrophe in 4Q2012. However, they could not commit to maintaining current DPU levels for FY2013 in light of current economic uncertainties, and also stated that deferred capex would eventually have to be spent. We believe our forecasts have adequately captured such a possible reduction in DPU (-5% YoY) for FY2013.

Still yielding 8% despite recent price surge, BUY. We continue to like HPHT for its resilient earnings and attractive dividend yields of 7.7- 8.3% p.a., providing a yield advantage over the S-REITs sector of 2.0- 2.6%. While current sentiment surrounding the global economy remains tentative, we believe HPHT remains well poised to benefit from an economic recovery. We leave our DDM assumptions largely intact, and maintain our Target Price of USD0.925. Reiterate BUY.