Hutchison Ports Holdings Trust: Lower Throughput Hits 1HFY13 Numbers
(NEUTRAL, USD0.74, TP: USD0.79)
HPHT’s 1HFY13 earnings missed forecasts due to weaker volume and higher costs resulting from a strike by its union. Even incorporating 2H’s peak season, trade volume in Hong Kong may at best come in flat y-o-y while that in Yantian will rise 3%-4% this year. We cut our earnings estimates on the lower volume, which trims our FV to USD0.79. Maintain NEUTRAL, as the stock’s yield is an attractive 6.4%.
Hit by industrial strike. As HPHT’s 1HFY13 earnings fell short of forecasts, we are slashing our FY13 estimate by 12%. Earnings fell 15.4% y-o-y (2QFY13: -25.2% y-o-y, -2.6% q-o-q), making up only 39.5% of our initial full-year forecast.
The contraction was largely attributed to the 2.1% dip in 1HFY13 total throughout due to weak EU and US trade, as well as a strike by its unionized workers. This caused a 0.9% drop in revenue during the period, further exacerbated by the higher costs relating to the strike in April and May. Management has agreed to a 9.8% increase in salary to meet the union’s demands. Meanwhile, the lower earnings led to the group’s 2QFY13 distribution per unit (DPU) shrinking 22.2% y-o-y to HKD0.187. HPHT is trying to meet the lower range of its DPU guidance of HKD0.40 to HKD0.51.
Box trends. Box trade in EU and US remained weak as the 2.3% YTD growth at Yantian Port was largely boosted by intra-Asia trade. This cushioned the contraction at HPHT’s ports. HIT, ACT and Cosco-HIT saw combined volume contracting 5.6% YTD in 1HFY13. To some extent, Yantian saw a rise in the number of transshipment boxes owing to the strike at Hong Kong International Terminal (HIT), while ACT, which was acquired in 1QFY13, captured additional volume diverted from HIT. With the advent of the peak season, Management hopes to see flat growth y-o-y for Hong Kong terminal in FY13 while Yantian port may see 3%-4% growth, since box trades to/from EU and US remain weak. We are cutting our projections due to the lower throughput, as illustrated in Figure 1. We expect throughput to improve come FY14, but Management has yet to provide any guidance.
FV cut. We trim our FY13/FY14/FY15 earnings by 12%/10%/9% respectively on assuming lower volume and cut our staff cost per TEU as our estimates were above Management’s guidance. We cut our FV to USD0.79 (from USD0.82), based on 8% cost of equity on DDM valuation. The attractive 6.4% dividend yield lends share price support.
Publish date: 01/08/13