Hutchison Port Hldgs Trust
LAST CLOSE: US$0.78
FAIR VALUE: US$0.865
ARising Tide LiŌsHPHT
Hutchison Port Holdings Trust (HPHT) is up 6.1% following our previous update on 31st July 2013. Positive economic data out of China and the US are likely to have catalyzed the recent run-up in its share price. While an improving macro outlook would augur well for HPHT, we also perceive its successful refinancing as a positive development. We raise our TP to US$0.865 and reiterate BUY.
Things are looking up in the US. Approximately 70% of Yantian Port’s throughput is exposed to US and Europe trade, which leaves HPHT an excellent proxy to a broad-based recovery in the US. Macroeconomic indicators such as US home sales, unemployment as well as retail sales have exhibited strong momentum in recent months (refer to Fig 1-3), and this should buoy throughput growth for HPHT.
Chinese economy gaining strength. There are also initial signs of a strengthening economy in China. Most noteworthy is perhaps the improved preliminary reading on the HSBC China Manufacturing Purchasing Managers’ Index from 50.1 in Aug 2013 to 51.2 in Sept 2013, providing early evidence towards a sustained recovery in the manufacturing sector (refer to Fig 4). While it remains to be seen whether this is indicative of an enduring economic rebound in China, we certainly view further improvements in macroeconomic indicators as potential catalysts for HPHT.
Throughput data chimes with macro outlook. YoY growth in year-to-date throughput volumes for Kwai Tsing Container Terminals, in particular, has been narrowing in recent months (refer to Fig 6-7). While Aug volumes at Yantian are relatively weak, we believe Yantian remains on track to achieving a low single-digit throughput growth. We conservatively maintain our forecasts at a 4% throughput growth for Yantian and flattish growth for its Kwai Tsing terminals in 2013.
Interest cost savings from refinancing deal. HPHT’s recent refinancing of its US$3.6bn loan is another positive development. The loan comprises three tranches, specifically a US$1bil one-year loan, US$1.6bil three-year loan and a US$1bil five-year loan. The one-year tranche offers an interest rate of 0.6% over the London interbank offered rate, or Libor, while the three-year tranche offers 1.1% over Libor and the five-year tranche offers 1.4% over Libor.
This represents a blended interest rate of 1.43% for the new loan, which compares favourably with the blended interest rate of 1.66% for the previous loan. The lower interest cost is expected to generate interest cost savings of approx. 0.7 HKD cents, leading us to raise our second-half DPU forecast to 22.5 HKD cents. Our DPU forecast of 22.5 HKD cents translates into an annualized yield of 7.5%.
Publish date: 26/09/13