Hutchison Port Holdings Trust - DBS Research 2016-12-08: Acquire or be acquired

Hutchison Port Holdings Trust - DBS Vickers 2016-12-08: Acquire or be acquired HUTCHISON PORT HOLDINGS TRUST NS8U.SI

Hutchison Port Holdings Trust - Acquire or be acquired

  • HPHT stands at a crossroads given its sluggish outlook, declining DPU and depressed stock price.
  • Acquisitions could help boost longer-term growth.
  • Privatisation by major shareholders cannot be ruled out.
  • Maintain BUY, TP S$0.48.



Unexciting outlook but stock looks oversold – BUY. 

  • Hutchison Port Holdings Trust (HPHT) offers investors an attractive 8.3% prospective yield even after our DPU forecast cut, and looks oversold at the current price level. 
  • Further upside could come from a stronger-than-expected recovery in China’s exports, acquisition driven growth or privatisation by its major shareholders.


Potential for acquisition-driven growth as organic growth stalls.

  • Aside from the acquisition of ACT in 2013, which was partially sold down soon after, and declining to acquire a 50% equity interest in Zhuhai International Container Terminals, all has been quiet on the inorganic front for HPH Trust since 2011. 
  • Given that DPU is a critical factor for share price, we opine that HPH Trust should look out for acquisitions to boost longer-term DPU, taking into account its relatively benign gearing level.


Could a take-out offer be on the cards if stock price persists at current levels? 

  • HPHT’s share price is trading near historic lows, offering a prospective yield of more than 8% in 2017F and at 0.6x FY16 P/BV, could be attractive as an acquisition target given its strategic assets. 
  • Notably, major shareholders CK Hutchison themselves are no strangers to privatisations.


Lowering FY17F EPS forecast by 4% and cutting FY17F DPU to HK 27cts. 

  • Amidst continued uncertainty in the outlook for global trade, we have cut throughput growth assumptions for FY17 and also factored in higher interest costs ahead – leading to a 4% cut in our FY17F EPS forecast. 
  • We have also lowered our DPU forecast for FY17F to HK 27cts from HK 30cts previously.

Valuation

  • 20% potential upside to TP of US$0.48 and 8.3% prospective yield is attractive as a defensive play. 
  • Our TP is based on a discounted cash flow valuation framework (weighted average cost of capital of 7% and terminal growth rate of 0%). 
  • While we have cut FY17F DPU forecast to HK 27cts, the prospective yield of 8.3% is attractive after a recent price correction.

Key Risks to Our View

  • A global recession would materially impact trade and throughput numbers for HPHT, which would then have an impact on the group’s earnings and cash flows, and ultimately dividend payout.




Paul YONG CFA DBS Vickers | Singapore Research Team DBS Vickers | http://www.dbsvickers.com/ 2016-12-08
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 0.48 Down 0.560




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