Hutchison Port Holdings Trust - DBS Research 2016-02-04: Safe harbour

SGinvestors.io

HPH TRUST HUTCHISON PORT HOLDINGS TRUST NS8U.SI 

Hutchison Port Holdings Trust  - Safe harbour 

• FY15 earnings of HK$1,745m above expectations thanks to HK$155m divestment gain 
• Final DPU of HK18.7cts in line (full year HK34.4 cts) 
• FY16F DPU projected to be HK31 cts, offering an attractive 8.5% dividend yield 

Attractive prospective yield of 8.5% on offer. 

• Even with a lowered expected DPU of HK 31cts in 2016F as compared to HK 34.4cts for 2015, HPH Trust offers an attractive prospective dividend yield of 8.5%, underpinning our BUY call on the stock. 
• We see HPH Trust also as a potential beneficiary of stronger export volumes on a weaker RMB versus the US$. 

Expecting better 2nd half in 2016 for throughput growth. 

• In terms of volumes, we expect the first half of 2016 to continue to see some weakness before seeing some recovery in the second half of 2016, which should result in flat throughput growth for the whole of 2016. 
• Stronger exports out of China on the weaker RMB could provide upside to HPH Trust’s throughput volumes. 

High dividend payout backed by strong cash flows. 

• While HPH Trust restarted its capital expenditure program in 2015 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 continue paying a high level of dividends to unit holders. 

Valuation: 

• 32% potential upside to TP of US$0.61 and 8.5% yield is attractive as a defensive play. 
• Our TP is based on a discounted cash flow valuation framework (weighted average cost of capital of 6.7% and terminal growth rate of 0%). 
• While DPU is projected to be lower at around HK31cts in FY16 from HK34.4cts in FY15, the stock still offers an attractive yield of c. 8.5% 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 | http://www.dbsvickers.com/ 2016-02-04

DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 0.61 Down 0.63