Hutchison Port Holdings Trust - DBS Research 2020-08-06: > 11% Yield Too Good To Ignore


Hutchison Port Holdings Trust - >11% Yield Too Good To Ignore

  • Raising FY20/F/21F earnings by 40%/18% to account for government subsidies and lower finance costs.
  • DPU has bottomed and should improve from 2H20 onwards, catalysing share price to re-rate.
  • Hutchison Port Holdings Trust's FY20F dividend yield of 11.3% rising to 12.5% for FY21F is highly attractive in our view.

Upgrade Hutchison Port Holdings Trust to BUY on higher Target Price of US$0.14.

  • We see Hutchison Port Holdings Trust (SGX:NS8U)’s current yield of 11.3% as an attractive level to enter, with an improving DPU outlook as a catalyst for share price to re-rate in the longer term.
  • We have raised our Hutchison Port Holdings Trust's FY20F DPU to 9 HKcts (from 8 HKcts previously) after factoring in lower finance costs and government subsidies and expectations of a stronger second half performance as many countries start to relax social distancing measures.
  • DPU for the second half of 2020 should thus be higher than the first half’s 4.3HKcts, while we also project a DPU of 10 HKcts for FY21F as the global economy recovers and drives higher throughput for Hutchison Port Holdings Trust.

Lifting FY20F forecasts; debt repayment program slated to end in FY21 also boosts longer term DPU prospects

Interim results and DPU above our expectations.

  • Hutchison Port Holdings Trust's PATMI declined by 9% y-o-y to HK$212.4m on a 12% y-o-y decrease in revenue to HK$4.8bn on overall 8% y-o-y decline in throughput handled in the first half of the year. Earnings was ahead of our expectations due to lower finance costs on lower effective interest rate of 2.8% (vs 3.5% for FY19) and lower overall debt, as well as government wage subsidies.
  • DPU declared for the first half was 4.3HKcts, which was above our full year expectation of 8 HKcts, reflecting the stronger than expected results.

Stronger second half for throughput.

  • While daily new COVID-19 cases continue to rise globally, social distancing measures have eased off considerably, which should drive higher economic activity and consumption. This should lead to higher throughput for Hutchison Port Holdings Trust in the second half as compared to the first half, taking into account that the second half is also seasonally stronger. Indeed, China PMI: New Export Orders as well as throughput for both Yantian port and Hong Kong port all saw significant month-on-month improvements in June.

Low interest rate environment a boon for HPH Trust.

  • Interest rates have fallen significantly since the beginning of the year, with the 3-month US LIBOR falling from 1.90 at the start of January 2020 to 0.27 currently, as the Fed cut rates to shore up the economy. With interest rates expected to stay low in the next 12-18 months, Hutchison Port Holdings Trust will continue to benefit from lower interest costs, as it did in its 1H20 interim results.

Debt repayment program to end in 2021, which could pave the way for higher dividends from 2022 onwards.

Paul YONG CFA DBS Group Research | https://www.dbsvickers.com/ 2020-08-06
SGX Stock Analyst Report BUY UPGRADE HOLD 0.14 UP 0.120