Friday, August 2, 2013

Hutchison Port Holdings Trust: Well past the worst (DBSV)

Hutchison Port Holdings Trust
BUY US$0.735
STI : 3,245.45
Price Target : 12-Month US$ 0.82

 Industrial action at HIT impacted 2Q13 results as expected, though partly offset by ACT acquisition
 On a positive note, 1H13 DPU of 2.4UScts was slightly ahead of expectations
 Expect higher DPU in 2H13 in line with seasonal patterns
 Maintain BUY with unchanged TP of US$0.82

Highlights
Weak results as expected. 2Q13 net profit declined 26% y-o-y to HK$420.5m, which was within expectations given the impact of the port workers’ strike in HK earlier in April 2013. Overall volumes handled in 2Q13 were down about 2% y-o-y, as the Trust’s HK operations recorded a 6% dip in volumes. The impact on volumes and revenue would have been greater if not for the acquisition of ACT, which helped soften the impact to an extent. Yantian Port volumes registered steady growth of 2%, mainly driven by transhipment activities as mainlane exports remained flattish.


Our View
But worst is over. Management indicated that HK operations are completely back to normal now and there are signs of volumes picking up in the first few weeks in July, in line with seasonal trends, especially at Yantian Port. On the macro front, we note that US payrolls data came in better than expected in June, and while unemployment rate didn’t fall, consumer sentiment has been improving for the last 3 months and US inventory to sales ratio has maintained upward momentum. This gives us some confidence in trade flows in 2H13. However, Europe trade flows continue to be weak, and overall, we expect largely flattish volume growth in FY13.

Expect higher DPU in 2H13. The Trust declared 1H13 DPU of 18.70HKcts, or about 2.4UScts, down about 22% y-o-y. For the full year FY13, we expect DPU of about 5.3UScts, as operations are expected to benefit from the usual peak season in 2H, as well as lack of one-off events like the industrial action at HIT.

Recommendation
Potential earnings upside from lower refinancing costs. The Trust has been evaluating refinancing options for its US$3bn term loan, and while we had earlier expected interest costs to exceed 3%, management guided that terms may be more favourable, and all in costs could range around 2.5%. This could potentially boost FY14 distributions by about 3-4%. For now, we maintain our estimates and TP is unchanged at US$0.82. BUY for healthy yield amid the uncertain macro environment. A trade recovery in 2H13 could provide an additional cyclical leverage boost.




Source/Extract/Excerpts/来源/转贴/摘录: DBS Vickers Research
Publish date: 31/07/13

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