Hutchison Port Holdings Trust - OCBC Investment 2017-06-19: Keeping Our Assumptions

Hutchison Port Holdings Trust - OCBC Investment 2017-06-19: Keeping Our Assumptions HUTCHISON PORT HOLDINGS TRUST NS8U.SI

Hutchison Port Holdings Trust - Keeping Our Assumptions

  • Recent spike in trading interest.
  • Tariff rate pressure.
  • FY17 yield of 6.5%.

Drewry and Alphaliner have raised forecasts 

  • Hutchison Port Holdings Trust (HPHT) saw a spike in trading volumes and unit prices late last week. 
  • HPHT's unit price rallied 5.9% last Thu alone, from US$0.425 to US$0.45, before moderating to US$0.445 on Fri. Last week’s trading volume stands at 161.5m units, as compared to an average of 50.1m units/week in the prior ten weeks. 
  • In terms of potential reasons for this trading interest, we note that industry watchers such as Drewry and Alphaliner have recently raised their forecasts for global throughput growth from a 2%-3% range to 4%-4.6%.

Maintaining our throughput assumptions 

  • According to port statistics, Hong Kong Kwai Tsing container throughput increased +14.3% YoY in May 2017, and +12.5% YoY for the JanMay 2017 period. On the other hand, Shenzhen container throughput increased +5.9% YoY in May and +0.8% YoY for the Jan-May 2017 period.
  • We believe that a part of the recent strength may be due to temporary adjustments as the newly formed alliances phase in their new vessels before subsequently phasing out their old vessels. 
  • In addition, overall HK Kwai Tsing growth rates may not be representative of HPHT’s throughput growth, with Modern Terminals exhibiting higher YoY growth as it makes up for a throughput drop in 2015. 
  • Recall that in 1Q17, HPHT’s HK throughput increased 3% YoY, even though a 12.5% YoY growth was reported for Kwai Tsing container terminals as a whole. 
  • For now, we maintain our expectation of a 4% gain for its HK throughput and a 2% decline for HPHT’s YICT throughput for FY17.

Pricing pressures still intact in the short term 

  • There is limited visibility on tariff rates as compared to throughput trends and we expect further pricing pressure for HPHT given renegotiations with the new alliances. 
  • Recall that in 1Q17, HPHT HK ports saw a 4% YoY drop in ASP, mainly due to these renegotiations. YICT ASP had also dropped 3% YoY, though mainly due to RMB depreciation. 
  • Against last Friday’s closing price, HPHT is trading at a FY17 yield of 6.5%. 
  • We maintain HOLD with a fair value estimate of US$0.42, and see a better entry point below US$0.40.

Deborah Ong OCBC Investment | 2017-06-19
OCBC Investment SGX Stock Analyst Report HOLD Maintain HOLD 0.420 Same 0.420