HPH Trust - OCBC Investment 2016-10-25: Potential Upside From 'One Alliance, One Terminal'

HPH Trust - OCBC Investment 2016-10-25: Potential Upside From 'One Alliance, One Terminal' HUTCHISON PORT HOLDINGS TRUST NS8U.SI

HPH Trust - Potential Upside From

  • NPAT attributable to unit-holders drops 18% YoY.
  • Owns 16 out of 24 berths in Kwai Tsing.
  • FY16/17 yield of 8.2%.

Results in line with expectations 

  • HPHT’s results were within expectations. 
  • 3Q16 core NPAT attributable to unit-holders decreased 18.2% to HK$430.2m, or 31% of our FY16 forecast. This was on the back of a 7% drop in revenue, which was partially offset by an 11% drop in cost of services rendered following HPHT’s efficiency improvement programme.

Downward adjustments of throughput assumptions 

  • Nonetheless, HPHT’s throughput fell more than we forecasted this past quarter. 
  • For YICT, the resilience shown in 1H16 (~1% YoY decline) was not repeated in 3Q16 which clocked an 8% drop YoY. This was mainly due to the decrease in empty and transshipment cargoes, which outweighed the rebound in US trade. 
  • On the other hand, while the YoY decline in HPHT’s HK ports did slow to a single-digit 8% as compared to the 12% drop seen in 1H16, we had expected even smaller declines given the comparison with a lower throughput base in 2H15. 
  • Given this quarter’s results, we revise our full-year throughput growth projections from 0.0% to -4.5% for YICT and from -8.0% to -10.5% for the HK ports.

Potential upside from “One Alliance, One Terminal” 

  • We consider the prospects of HK ports relatively bleak within the next two to three years, with little earnings visibility and a dearth of potential catalysts for a strong throughput recovery. 
  • Nonetheless, HPHT is expected to negotiate contracts with the shipping alliances in April 2017. 
  • Given their ownership of 16 out of 24 contiguous berths in Kwai Tsing, which would allow for internal trucking, we believe HPHT would be in good stead to negotiate with alliances which seek to streamline terminal usage, thereby allowing HPHT to boost their throughput significantly. 
  • Caveats include a potential offset by lower tariff rates offered to attract alliances, as well as any capacity constraints with HPHT’s HK utilization rate currently standing at ~75%. Given the lack of clarity on this front, we have yet to factor this potential upside into our model. 
  • Against yesterday’s closing price of US$0.450, HPHT is trading at a blended FY16/17 yield of 8.2%. After fine-tuning, our fair value estimate remains at US$0.46. 
  • We maintain HOLD.

Deborah Ong OCBC Investment | http://www.ocbcresearch.com/ 2016-10-25
OCBC Investment SGX Stock Analyst Report HOLD Maintain HOLD 0.46 Same 0.460