Hutchison Port Holdings Trust - Likely pricing pressure
- Results in line with expectations.
- FY17 yield of 6.8%.
- Downgrade to HOLD on lower yield.
FY16 results were in line with expectations
- Hutchison Port Holdings Trust’s (HPHT) FY16 results were in line with expectations.
- FY16 revenue dropped 5.6% YoY to HK$11,912.3m, or 99% of our forecast, while operating profit dropped 3.0% YoY to HS$4,224.1m, or 102% of our forecast.
- DPU for the year came up to 30.60 HK cents, or 99% of our forecast.
- Its performance was in line with our expectations as the 8% decline in HPHT’s HK throughput and 4% in its YICT throughput were in line with our forecast of an 8% decline and 3% decline respectively.
2017 outlook – pricing pressure
- Looking forward, we believe that existing business relationships with shipping lines under alliances are likely to remain intact, though pricing will be under pressure as lines will negotiate for the lowest rates offered to other members in the alliance.
- We currently project a 3% decline in revenue/TEU for FY17.
- We also note HPHT has been losing market share in HK, from 75.5% for FY15 to 71.0% for FY16. While HK Kwai Tsing container throughput rose +10.5% YoY for 4Q16, HPHT’s HK throughput only increased +1.6% YoY.
- While we believe HK container throughput has turned a corner, we are slightly less optimistic on the extent of throughput growth HPHT will enjoy.
FV change minimal
- For FY17 DPU guidance, management has shifted from 25-27 HK cents earlier to 20-23 HK cents assuming flat operational conditions after taking into account the voluntary debt amortization and possible interest rate hikes. There is also no certainty that HIT’s HK$430m rates refund given last year will be used to soften the impact of the DPU drop.
- After tweaking our model, which now assumes no buffer applied by the refund, our DPU falls to 23.4 HK cents. This is slightly higher than the range cited by the management, partly as we have input expectations for lower capex.
- HPHT is trading at a FY17 yield of 6.8%. Our DDM-based fair value drops from US$0.46 to US$0.45.
- While the FV change has been minimal, we downgrade HPHT from a Buy to a HOLD given the lower expected FY17 yield. We encourage investors to collect HPHT at US$0.41 and below.