Hutchison Port Holdings Trust - OCBC Investment 2018-04-16: Trade Spat Affects < 2% Of Throughput

Hutchison Port Holdings Trust - OCBC Investment 2018-04-16: Trade Spat Affects Less Than 2% Of Throughput HUTCHISON PORT HOLDINGS TRUST NS8U.SI

Hutchison Port Holdings Trust - Trade Spat Affects < 2% Of Throughput

  • Time to BUY.
  • Overreaction to NDRC, trade spat.
  • Keeping our Fair Value of US$0.43.

US-China trade spat fears overblown 

  • Goods targeted in the proposed tariffs make up around 2% of YICT’s throughput and 1% of HPHT Kwai Tsing’s throughput, based on analysis done by Hutchison Port Holdings Trust (HPHT)’s management of the product types they handle. 
  • Even if all of the throughput related to these goods were to cease completely as a result of the tariffs (which may or may not be implemented), a scenario which we consider unlikely in itself, we estimate that the impact on HPHT is less than 2%.

1Q18 shows little to no impact from NDRC regulations 

  • Recall that HPHT’s unit price fell 10% the week following China's National Development and Reform Commission (NDRC)’s announcement of a 30% cut in the “list price” for Yantian ports, a measure that we asserted would be largely insignificant to HPHT’s operational outlook. 
  • We believe 1Q18 results indicate that these fears have indeed been overblown – revenue/TEU for YICT fell only 1% y-o-y in 1Q18, which in turn was mainly a result of continued impact from shipping line M&A and a change in throughput mix, countered by RMB strength.

Focus on key catalysts 

  • Overall, 1Q18 results were in line with expectations. 
  • 1Q18 revenue was up 3.5% y-o-y to HK$2.7b or 23.4% of our full-year forecast, consistent with seasonal variation. 1Q18 PATMI came in at HK$145.4m or 23.3% of our full-year forecast, down 12.9% y-o-y, mainly due to the increase in interest costs. 
  • Throughput for HPHT’s ports increased 5% y-o-y during the quarter, with YICT’s throughput increasing 9% due to growth in empty and transshipment cargoes, and Kwai Tsing throughput increasing 1% on better transshipment volume. 
  • Going forward, we believe the key catalysts for HPHT’s unit price rerating include
    1. an amelioration of NDRC-related fears from tariff stability
    2. an alleviation of trade spat worries from continued throughput growth and
    3. a slowdown in y-o-y ASP declines in 2H18 from the low base in 2H17. 
  • After adjustments, our fair value remains at US$0.43, which represents an upside of 30.3% against 13 Apr’s close of US$0.33. Management continues to guide 20-23 HK cents for FY18 DPU and HPHT is trading at a 8.1% FY18F yield as of 13 Apr’s close. 
  • Re-iterate BUY.

Deborah Ong OCBC Investment | 2018-04-16
OCBC Investment SGX Stock Analyst Report BUY Maintain BUY 0.430 Same 0.430