Hutchison Port Holdings Trust - DBS Research 2018-02-06: Tepid DPU Growth Outlook

Hutchison Port Holdings Trust - DBS Vickers 2018-02-06: Tepid DPU Growth Outlook HUTCHISON PORT HOLDINGS TRUST NS8U.SI

Hutchison Port Holdings Trust - Tepid DPU Growth Outlook

  • Hutchison Port Holdings Trust's full year DPU of HK 20.6cts in line with expectations even as net profit was slightly below projections.
  • EPS to improve gradually on low single digit throughput volume growth and close the gap with DPU payout.
  • We project FY18 DPU of HK 21cts, which is within the guidance range of HK 20 to 23 cts.
  • Maintain HOLD with US$0.39 Target Price.



Maintain HOLD with Target Price of US$0.39. 

  • We see Hutchison Port Holdings Trust (HPHT) as fairly valued given its current prospective yield of 7.2% as the group has maintained FY18F DPU to be in the range of HK 20 - 23cts, which is the same as 2017. 
  • We would be buyers if share price gets closer to US$0.35, at which point the prospective dividend yield would be north of 7.5%.


Where we differ: 

  • Like us, consensus will likely cut earnings forecasts but maintain DPU forecasts to be in the lower range of the company’s guidance.


Potential catalysts. 

  • HPHT’s share price could re-rate if throughput volumes can more than offset a decline in average tariff rates in the quarters ahead.

3Q17 earnings were very weak. 

  • Looking ahead, throughput volume growth is expected to be in the low single digit region as the global economy continues to improve steadily though some continued pressure on ASPs can be expected as consolidated liners and alliances negotiate for further incentives. 
  • We’ve cut FY18 and FY19 forecasts by 10% and 13% respectively to factor in higher Non-Controlling Interests and Finance Costs but net profit is still projected to improve by 10% and 7% y-o-y to HK$1,042m and HK$1,114m respectively.


Valuation

  • Maintain HOLD with Target Price of US$0.39. 
  • Our Target Price is based on a discounted cash flow valuation framework (weighted average cost of capital of 7.4% and terminal growth rate of 0%). 
  • With low DPU growth projected, we see current prospective yield of 7.2% as fair.


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.



WHAT’S NEW - Final dividend of HK 11.1cts in line with expectations even as earnings were below projections 


DPU in line, earnings less so. 

  • Hutchison Port Holdings Trust (HPHT) announced full year results that were 6% below our expectations, with PATMI coming in at HK$944m vs our forecast of HK$1,007m, due to a larger non-controlling interest line stemming from Yantian operations doing far better than expected versus Hong Kong operations, which are wholly owned. 
  • Revenue fell by 3% yo-y to HK$11.55bn, mainly led by a 14.5% y-o-y decline in Hong Kong. Overall EBIT fell by 14.7% y-o-y to HK$3.6bn and coupled with higher interest costs and losses from joint ventures and associates, pre-tax earnings fell by 24.9% y-o-y to HK$2.7bn.

Earnings should gradually improve but we expect DPU to stay flattish. 

  • Looking ahead, throughput volume growth is expected to be in the low single digit region as the global economy continues to improve steadily though some continued pressure on ASPs can be expected as consolidated liners and alliances negotiate for further incentives. 
  • While we expect overall revenue to be firmer in 2018 with volume growth offsetting ASP decline, and EBIT to improve from continued cost management, higher interest costs will erode some of that gain. 
  • We’ve cut FY18 and FY19 forecasts by 10% and 13% respectively to factor in higher Non-Controlling Interests and Finance Costs but net profit is still projected to improve by 10% and 7% y-o-y to HK$1,042m and HK$1,114m respectively.
  • More importantly, Hutchison Port Holdings Trust guided that FY18 DPU is expected to be in the HK 20 to 23cts range and we forecast FY18 DPU to be HK 21cts, which is more or less flat from FY17. This translates to a prospective dividend yield of 7.2% for FY18, which we see as fair.




Paul YONG CFA DBS Vickers | http://www.dbsvickers.com/ 2018-02-06
DBS Vickers SGX Stock Analyst Report HOLD Maintain HOLD 0.390 Same 0.390



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