HUTCHISON PORT HOLDINGS TRUST
NS8U.SI
Hutchison Port Holdings Trust - SAFE HARBOUR
Upgrade from HOLD on attractive valuations.
- Despite cutting FY15/16F earnings by 7%/8% to account for weaker ASP growth outlook in view of the current economic environment, we upgrade Hutchison Port Holdings Trust (HPHT) to BUY with TP of US$0.62; dividend yield of c.7.5% is attractive at current prices, with 9% upside to our TP.
Modest throughput growth outlook.
- Outward bound cargoes to the US have shown an encouraging upward trend and are likely to continue on a mild recovery path over the rest of the year. However, this could be partially offset by continued softness in outward cargoes to Europe.
High dividend payout backed by strong cash flows.
- While it has restarted its capital expenditure program this year to build three new deep-water berths in Yantian, operating cash flows remain strong given the nature of its business and its high margins. We are therefore confident of HPHT’s ability to meet our dividend forecasts.
Valuation:
- 9% potential upside to TP of US$0.62 and 7.5% yield is attractive as a defensive play. Our TP is based on a discounted cash flow valuation framework (weighted average cost of capital of 7.0% and terminal growth rate of 0%).
- While DPU is projected to be lower at around 4.3 UScts in FY15/16 from 5.3 UScts in FY14 as HPHT restarts its capital expenditure program, the stock still offers an attractive yield of c. 7.5% at the current price level.
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
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http://www.dbsvickers.com/
2015-09-23
DBS Vickers
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