Hutchison Port Holdings Trust - DBS Research 2019-07-25: 2019 DPU Forecast Cut To 13HKcts

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HUTCHISON PORT HOLDINGS TRUST (SGX:NS8U)

Hutchison Port Holdings Trust - 2019 DPU Forecast Cut To 13HKcts

• Hutchison Port Holdings Trust's 1H19 earnings below expectations as net profit fell 26% y-o-y on higher finance and tax expenses, on flattish revenue growth.
• Interim dividend of 6HKcts with FY19 full year DPU guidance now at lower end of 11-17HKcts.
• FY19/20F earnings lowered by 12%/10%, FY19F DPU cut to 13HKcts.
• Maintain HOLD with a lower Target Price of US$0.23.

Maintain HOLD with a lower Target Price of US$0.23.

• Despite a decent prospective yield of 7.4% on offer, we remain neutral on HUTCHISON PORT HOLDINGS TRUST (SGX:NS8U) as it remains vulnerable to the on-going trade dispute between the US and China as its key port asset in Yantian, Shenzhen is heavily exposed to China’s export sector.
• Its Hong Kong port asset has also been underperforming for many years with no clear sign of a turnaround anytime soon.

Where we differ:

• We cut our FY19F and FY20F DPU by 2HKcts per year to 13HKcts and 14 HKcts respectively.

Potential Catalysts:

• Hutchison Port Holdings Trust’s share price could re-rate if throughput volumes can drive better-than-expected revenues and cash flows in the quarters ahead.

WHAT’S NEW - 1H19 earnings and DPU disappoint

2Q19 net profit slides 20% y-o-y.

• Hutchison Port Holdings Trust reported 2Q19 net profit of HK$137m to HK$5,424m.
• Lower net I & II. Following the expiry of its tax status, its tax rate increased from 15% to 25% standard tax rate. The management believes that Hutchison Port Holdings Trust stands a low chance in getting the same tax incentive given more stringent requirements. Further, the management does not expect any rate hikes in the second half and finance costs should remain largely the same.

Cautious DPU guidance.

• The management shared 13 HKcts from 15 HKcts, while cutting our FY19F earnings by 12 US$0.23.
• Our Target Price is based on a discounted cash flow valuation framework (weighted average cost of capital of 8.6% and terminal growth rate of 0%).

Paul YONG CFA DBS Group Research | https://www.dbsvickers.com/ 2019-07-25

SGX Stock Analyst Report HOLD MAINTAIN HOLD 0.230 DOWN 0.260