Hutchison Port Holdings Trust - DBS Research 2016-04-19: Planning ahead

Hutchison Port Holdings Trust - DBS Research 2016-04-19: Planning ahead HPH TRUST HUTCHISON PORT HOLDINGS TRUST NS8U.SI 

Hutchison Port Holdings Trust - Planning ahead 

  • Weak 1Q core net profit of HK$210m (-26% y-o-y), helped by rate refund of HK$357m 
  • Debt repayment could cap DPU growth from 2017 onwards 
  • DPU guidance of HK 30–32cts maintained by HPHT 
  • Maintain BUY, TP lowered to US$0.57 


A defensive yield play. 

  • HPHT offers investors an attractive yield of over 7.5% at current prices, from cash flow generated by its market share leading port operations in Shenzhen and Hong Kong. 
  • While a planned debt repayment programme from 2017F onwards could cap DPU growth in the medium term, a rebound in trade volumes and throughput as well as a stronger balance sheet thereafter could support longer-term expansion. 


Lowering DPU forecasts for FY16F/FY17F modestly by 3.2%/3.3%. 

  • We have lowered our throughput growth assumptions for 2016F and thus cut our FY16F and FY17F core profit forecasts by 5.1% and 3.1% respectively. 
  • As a result, we have lowered our DPU forecasts for HPHT in these two years by 3.2%/3.3% to HK 30cts/HK 29.6cts. 
  • Factoring in the net gain on receipt of a government rent and rates refund of HK$357m, our FY16F forecast is lifted overall by 18%. 


Debt repayment plan explained. 

  • HPHT signalled that it will look to repay a minimum of HK$1bn of debt annually beginning from 2017 to lower its gearing level and improve its interest coverage ratios in a rising interest rate environment. 
  • Including mandatorily amortising loan amounts and contributions from non-controlling interests on debt repayment, we estimate this would result in a HK$300-350m use of cash per annum that could potentially impact distributable income by 11-13%, assuming earnings and cash flow do not improve significantly beyond 2017F. 


Valuation: 

  • 13% potential upside to TP of US$0.57 and 7.7% 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% and terminal growth rate of 0%). 
  • DPU is projected to be lower at c. HK 30cts in FY16F from HK 34.4cts in FY15, but still offers an attractive yield of c. 7.7%. 


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/ 2016-04-19
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 0.57 Down 0.61


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