Hutchison Port Holdings Trust - OCBC Investment 2016-03-29: Shipping alliances set to restructure

Hutchison Port Holdings Trust - OCBC Investment 2016-03-29: Shipping alliances set to restructure HUTCHISON PORT HOLDINGS TRUST NS8U.SI 

Hutchison Port Holdings Trust: Shipping alliances set to restructure 

  • Major restructuring of three alliances 
  • Weak throughput and economic data 
  • Mega-vessel suitability a plus 

Three out of four shipping alliances restructuring 

  • With the merger of the Cosco and China Shipping, as well as CMA CGM’s acquisition of NOL and its container carrier APL, the CKYHE Alliance, the Ocean Three Alliance, and the G6 Alliance are all expected to undergo a reconfiguration; the expiration dates for the first two are coming up at the end of 2016 and early 2017 respectively. 
  • Maersk’s 2M Alliance with Mediterranean Shipping is to remain in place with eight years left in its 10-year agreement. 
  • We take the recent M&A activity to be a sign that shipping lines are under pressure to cut costs in the face of low rates. 
  • Rationalization of port usage is expected to continue well into next year, posing a drag on throughput volumes for HPHT’s FY16 and FY17. 

Feb throughput numbers point to deteriorating environment 

  • In February, Kwai Tsing terminals clocked a 18% YoY drop in Feb to 973K TEU, the first time below 1m TEU in more than two years. Shenzhen throughput volumes also dropped 13% YoY in Feb to 1.6m TEU. 
  • Other figures for China paint a weak macroeconomic outlook: Feb exports and imports dropped 25% and 14% YoY respectively, while both the official and Caixin manufacturing PMI stand below 50. 

Mega-vessel deployment places HPHT in good stead, but risks prevail 

  • 53 mega ships are expected to enter service in 2016, according to Drewry Shipping. 
  • While HPHT’s assets look well-positioned to outperform the industry due to its suitability for mega-vessel deployment, we continue to be concerned with the ongoing rationalization of port usage. 
  • Furthermore, Shanghai’s proposal for the liberalization of cabotage in China could pose a serious threat to Hong Kong’s position as a transshipment hub. The proposal is understood to be currently under review by mainland authorities. 
  • In light of the vulnerable industry outlook, we maintain HOLD with a fair value estimate of US$0.46. 

Deborah Ong OCBC Securities | 2016-03-29
OCBC Securities SGX Stock Analyst Report HOLD Maintain HOLD 0.46 Same 0.46