Hutchison Port Holdings Trust - OCBC Investment 2019-07-26: Outlook Remains Subdued 


Hutchison Port Holdings Trust - Outlook Remains Subdued 

  • Weak 2QFY19 results.
  • Expiry of tax incentives for YICT Phase I & II.
  • Cargo volumes under pressure.

PATMI dropped 20% y-o-y

  • HUTCHISON PORT HOLDINGS TRUST (SGX:NS8U)’s 2QFY19 results were broadly in-line with our expectations. 2QFY19 revenue and other income declined 1.4% y-o-y, or HK$40.7m to HK$2.7b.
  • Operating profit was flat (+0.2% y-o-y) at HK$838.4m in 2QFY19, and a slight 0.5% y-o-y increase or HK$8.0m in 1H2019 to HK$1.6b due to cost savings.
  • PATMI in 2QFY19 declined by 20% y-o-y or HK$34m to HK$136.5m, mainly due to higher interest cost and taxation.

Higher interest cost and taxation

  • Hutchison Port Holdings Trust's 2QFY19 interest and other finance costs rose 7.6%, or HK$19.1m to HK$271.1m on the back of higher HIBOR/LIBOR applied on the bank loans’ interest rates.
  • Taxation in 2QFY19 was HK$109.0m which was up 7.1% y-o-y or HK$7.2m. This was driven by the expiry of “High and New Technology Enterprise” status of Yantian (YICT) Phase I & II.
  • Following the expiry of the status in FY18, the tax rate rose from 15% to 25%. Management sees the chances of obtaining the same tax benefit for YICT this year as low due to more stringent assessment criteria.

US cargo volumes remain weak

  • Combined container throughput of HIT, COSCO-HIT and ACT (collectively “HPHT Kwai Tsing”) lost 4.4% and 7.0% y-o-y in 2QFY19 and 1H19 respectively, dragged by the drop in intra-Asia and transshipment cargoes.
  • On a positive note, the container throughput of YICT was up 4.9% and 4.8% y-o-y in 2QFY19 and 1H19 respectively. The improvement was driven by the growth in empty and transshipment cargoes, but offset by the decrease in US cargoes.
  • Despite the continued decline in the US cargoes which was down by 5% y-o-y in 2HFY19, the outbound cargoes to the Europe grew by 7% y-o-y. Given the uncertainties over US-China trade disputes, we expect the US cargo volumes to remain weak, but we could potentially see more opportunities in the Europe market in 2H19.

Remain cautious

  • Hutchison Port Holdings Trust's DPU dropped 30% from 8.52 HK cents in 1H2018 to 6 HK cents in 1H2019. While management continues to guide 11 to 17 HK cents for FY19 DPU, management noted that the DPU is likely to trend towards the lower end of the range.
  • We maintain our full-year DPU forecast of 13 HK cents. We remain cautious on the cargo trends which are likely to remain under pressure in 2H2019, amidst the global economic slowdown and trade tensions.
  • Maintain HOLD with unchanged fair value estimate of US$0.22.

Chu Peng OCBC Investment Research | https://www.iocbc.com/ 2019-07-26
SGX Stock Analyst Report HOLD MAINTAIN HOLD 0.220 SAME 0.220