Hutchison Port Holdings Trust - OCBC Investment 2017-10-31: Unit Prices Now More Reasonable

Hutchison Port Holdings Trust - OCBC Investment 2017-10-31: Unit Prices Now More Reasonable HUTCHISON PORT HOLDINGS TRUST NS8U.SI

Hutchison Port Holdings Trust - Unit Prices Now More Reasonable

  • Effective cost management.
  • Throughput growth offset by ASP decline.
  • Upgrade to HOLD.

3Q results within expectations 

  • Hutchison Port Holdings Trust (HPHT)'s 3Q17 revenue dropped 1.3% YoY to HK$3,221.9m, or 27.4% of our forecast. 9M17 revenue made up 73.9% of our forecast. Note that 9M16 revenue made up 75.2% of FY16 revenue. Notably, despite the sharp increases in throughput, cost of services rendered during the quarter only showed a 2.4% increase YoY.
  • Interest and other finance costs increased 36.6% YoY to HK$238.3m, primarily due to higher HIBOR/LIBOR applied on the bank loans’ interest rates. NPAT attributable to unitholders dropped 37.1% YoY to HK$270.4m or 23.5% of our fullyear forecast.
  • Despite throughput growth, ASP declines kept revenue flat HPHT’s 13% YoY increase in its 3Q17 HK throughput was higher than expected, as the ports enjoyed stronger transshipment cargoes as well as additional throughput from a new customer. Meanwhile, YICT’s 3Q17 throughput gain of 14% YoY pleasantly beat our expectations, boosted by growth in the US, Europe, empty, and transshipment cargoes.
  • Nonetheless, ASP for HPHT’s HK ports and YICT dropped 14% YoY (~10-11% decline excluding one-offs) and 4% YoY in 3Q17 respectively, which on a blended basis was significantly more severe than the 5% ASP decline we projected for the full year. 
  • On a 9M17 basis, HPHT’s HK and YICT throughput increased 7% and 8% YoY respectively, while HPHT’s HK and YICT ASP dropped 9% and 4% respectively. We tweak our full-year forecasts accordingly.

Management keeping to DPU guidance 

  • The management still keeps to its FY17 DPU guidance of 20 to 23 HK cents, and am more comfortable with the lower end of that range. This translates to 5.9% to 6.8% dividend yield against yesterday’s closing price of US$0.435.
  • Looking forward to FY18F, the management expects a much milder decline in ASP and low single-digit throughput growth in Kwai Tsing and YICT. As we roll our estimates forward, our fair value remains at US$0.42. Against yesterday’s closing price, HPHT is trading at an FY17F yield of 6.2% and an FY18F yield of 6.6% (our forward estimates). 
  • Given more reasonable unit prices, we upgrade HPHT to HOLD with an unchanged fair value of US$0.42.

Deborah Ong OCBC Investment | http://www.ocbcresearch.com/ 2017-10-31
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