Hutchison Port Holdings Trust - DBS Research 2017-04-26: A Slow Start to 2017

Hutchison Port Holdings Trust - DBS Vickers 2017-04-26: A Slow Start to 2017 HUTCHISON PORT HOLDINGS TRUST NS8U.SI

Hutchison Port Holdings Trust - A Slow Start to 2017

  • Core earnings declined 14% y-o-y in 1Q17, dragged by losses at newly acquired Huizhou Container Terminals.
  • 1Q17 profit of HK$167m slightly below expectations.
  • FY17 DPU guidance of 20-23HKcts reiterated. Maintain HOLD.



Maintain HOLD with TP of US$0.42 as DPU guidance of 20-23 HKcts for 2017 underwhelms. 

  • Citing an uncertain business outlook, especially for Hong Kong’s transhipment business, and re-iterating the plan to pare down its debt, as well as rising interest rates outlook, Hutchison Port Holdings Trust’s (HPHT) DPU guidance for 2017 now stands at 20-23 HKcts, which is substantially lower than 2016.


Tough operating environment as trade growth remains sluggish.

  • Amid the deteriorating shipping environment, the formation of new shipping alliances (such as Ocean Alliance which is due to commence operations in April 2017) that are increasingly focused on efficiency could put further pressure on transshipment volumes – which are purely viewed as costs to shipping lines. 
  • Meanwhile, trade volumes in the Pearl River Delta region remain mired in a sluggish growth environment.


Unexciting earnings of HK$1,445m for FY17F. 

  • FY16 earnings of HK$1,714m and 30.6 HKcts DPU were in line with our expectations. 
  • For 2017, we project lower earnings of HK$1,445m for the group, mainly as we expect potential tax savings arising from HPHT’s recently approved “High and New Technology Enterprise” status to be more than offset by slightly lower throughput (in Hong Kong) and margins.


Valuation

  • Maintain HOLD with TP of US$0.42. Our TP is based on a discounted cash flow valuation framework (weighted average cost of capital of 7.4% and terminal growth rate of 0%).
  • After recently cutting FY17F DPU forecast to 22HKcts, we see the prospective yield of 6.9% as fair.


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 | http://www.dbsvickers.com/ 2017-04-26
DBS Vickers SGX Stock Analyst Report HOLD Maintain HOLD 0.420 Same 0.420



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