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Price (30 Jul 13 , US$) 0.74
TP (prev. TP US$) 0.72 (0.72)
2Q13 results: Hits consensus and likely at the trough
● Hutchison Port Holdings Trust (HPHT) reported 2Q13 pre-ex NPAT of HK$409 mn, down 30% on last year’s HK$594 mn, but 5% ahead of our estimate of HK$390 mn and in line with consensus of HK$416 mn.
● The results included performance fees and ACT acquisition fees totalling HK$60 mn, although exchange gains and a lower tax rate together with better unit revenues at Hong Kong operations accounted for the difference.
● Lower interest expense and guidance for flat volumes have shaped our profit expectations, which we have left largely unchanged at HK$2,231 mn and HK$2,482 mn for 2013 and 2014, respectively.
● With guidance for distributions now firmly anchored at our target HK$0.40/share, we believe that the company has completed its downward re-rating and have lifted our call to NEUTRAL with our unchanged TP of US$0.72, based on the 7%+ t
Flat is the new up
Relative to our expectations, 2Q13 numbers were broadly ahead of our expectations, even though throughput fell more than we had anticipated. Better cost control and improved revenue/TEU in HKG were the main contributors, as was the ability to better utilise 1Q13’s purchase of ACT to defray some of the impact of industrial action during the quarter on HIT’s volumes. Revenue outperformed our estimates by 2% even though volumes were down 4% YoY and 5% worse than our estimates. Bizarrely average box yields in Hong Kong actually rose 2% YoY as the dock strikes diverted mostly lower yield transhipment volumes. Yantian, which was a beneficiary of these, saw unit revenues slide as a consequence of handling more transhipped goods (now 10% of total) and a higher number of empties. Chinese revenue now accounts for 53% of 1H13 contributions and 54% of 2Q13. On the cost side, labour expenses rose 6% and we expect to see these track higher during the back half of the year reflecting the ~10% settlement that HPHT's sub-contractors made with dock workers and the progressive pass through.
Distribution yield is the principal driver for investors in HPHT and 1H13's recommended HK$0.187/unit matched our crimped expectations. However, this did reflect some lower capex than anticipated. The company is still guiding towards HK$1.2 bn in capex for 2013, implying twice as much expenditure in 2H as land associated with the Westports project in Shenzhen is paid for. This will be funded out of cash flow, leaving the company—on our estimates— able to pay out another HK$0.21/share and hit the bottom of its previous guidance range.
In terms of profit targets, we believe that HPHT will see little change from 2012’s pre-ex numbers and this is consistent with management guidance towards flat volumes, progressively higher labour costs (as above), offset by better financing than had originally been anticipated. HPHT is refinancing the short-term loan used to acquire ACT in March and expects to have this complete by September at rates below previously anticipated levels. Average cost of funds are expected to be around 2.2% this year rising to 2.5% next vs previous guidance to 3.3-3.5%.
We have lifted our rating for the stock to NEUTRAL, more as a reflection of its stock price decline than a ringing endorsement of the liner trade and associated ports industry. HPHT is doing the best that it can with what it has, although July’s first three weeks of data appear to be continuing June’s improvement, rising 8% YoY and with growth split ~60:40 laden vs transhipments. Management, however, holds an equally phlegmatic view of 3Q’s peak season that most liner operators do, with modest demand out of the US and Europe still mired in recession and Intra-Asian volumes feeling some of that as much of them are re-exported to EU destinations.
Publish date: 31/07/13