Fair value US$0.76
add: 12m dividend forecast US$0.05
versus: Current price US$0.73
Market leader in the Pearl River Delta
Hutchison Port Holdings Trust (HPH Trust) is the biggest container port operator in China’s Pearl River Delta region by throughput, with market shares of around 70% at Hong Kong’s main Kwai Tsing Port and 47% in Shenzhen. The business trust enjoys the backing of sponsor Hutchison Port Holdings, one of the world’s biggest port operators and a subsidiary of HK-listed conglomerate Hutchison Whampoa, headed by billionaire Li Ka-shing.
Well-placed to ride rebound in world trade
HPH Trust owns interests in four deep-water container port assets – three at Hong Kong’s main Kwai Tsing Port and one in Shenzhen – with a combined throughput of some 22.9m TEU in 2012. We believe that its market dominance in the Pearl River Delta puts the trust in a strong position to capture the region’s trade flows of manufacturing exports and raw material imports, including intra-Asia cargo. HPH Trust is also likely to be a key beneficiary of the trend by shipping companies to deploy bigger vessels as they strive for greater economies of scale; its container terminals are situated in harbours with natural deep water approaches and are equipped with advanced equipment capable of serving even the world’s biggest vessels. Overall, we believe that HPH Trust is well-placed to benefit from a rebound in international trade as the US and Europe economies recover, as well as continued growth in intra-Asia trade.
Recent price drop offers good entry point, decent upside
HPH Trust’s unit price has declined by 16% from its recent peak of US$0.86 on 2 Apr, hurt by concerns over the impact of strikes by port workers in Hong Kong in April and in Shenzhen earlier this week (both since resolved), and the weakness in the global economy. At the current price of US$0.725, we believe that the trust offers upside potential, including distributions, of more than 10% over the next 12 months as the recovery in the US and Europe gathers momentum. The main risk to our investment thesis in the short term is a renewed slowdown in these major economies. Still, we expect strong support for HPH Trust at its current price, given its attractive distribution yield of around 7%. Initiate with a BUY rating and US$0.76 target price.
Publish date: 04/09/13