Hutchison Port Holdings Trust - DBS Research 2015-10-26: Margins improve on higher ASPs

Hutchison Port Holdings Trust - DBS Research 2015-10-26: Margins improve on higher ASPs HUTCHISON PORT HOLDINGS TRUST NS8U.SI 

Hutchison Port Holdings Trust - Margins improve on higher ASPs 

  • 3Q net profit rose 7.3% y-o-y to HK$948.5m, mainly on higher tariffs and productivity improvements. 
  • Earnings are above our expectations, with better ASPs helping to improve margins. 
  • Cost efficiencies and tariff increases to drive revenue improvement beyond FY15. 
  • Maintain BUY for its prospective dividend yield of 7.9%. TP of US$0.63 is based on DCF. 


Highlights 


Modest top-line growth as tariff increases offset weakness in throughput volumes. 

  • Revenue grew 2% y-o-y in 3Q15 t throughput volumes. o HK$3,501.7m, mainly on higher ASPs as throughput volumes remained flat. During the period, throughput handled in HIT declined by 9.2% while container throughput in YICT grew 6% y-o-y. Despite a weaker trading environment, the Group’s NPAT rose by 7.3% to HK$948.5m as HPHT benefitted from lower fuel price and productivity improvements. 

Lower contributions from associates and JVs. 

  • While Lower contributions from associates and JVs. share of profits from associates grew 46.5% y-o-y to HK$6.3m in 3Q15, contribution from JVs fell 21.7% y-o-y to HK$28.5m, largely due to ACT's weaker performance as its container throughput fell 20.1% vs 3Q14. 

Outlook 


Export outlook remains mixed... 

  • Although outward-bound cargoes to the US are likely to extend their growth over the rest of the year, they could be offset by continued softness in outward cargoes to Europe. 

...but further upside could come from tariff hikes and greater cost efficiencies. 

  • With half of HPHT’s customers due for renewal in FY16, further tariff increases, alongside efficiency gains from ongoing efforts to boost productivity, could help drive earnings beyond FY15. 
  • Factoring in higher ASPs ahead, we revise our forecasts by 5% across FY15-17 and adjust our TP to US$0.63. 

Valuation: 


Maintain BUY; TP of US$0.63. 

  • At current prices,a 7.9% yield % yield is attractive as a defensive play. 
  • Our TP is based is attractive as a defensive play. 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 4.4 UScts in FY15/16 from 5.3 UScts in FY14 as HPHT restarts its capital expenditure programme, the stock still offers an attractive yield of c.7.9% at its current price level.


Paul YONG CFA DBS Vickers | http://www.dbsvickers.com/ 2015-10-26
DBS Vickers SGX Stock Analyst Report BUY MAINTAIN BUY 0.63 Up 0.62


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