Price (21 Oct 13) US$0.77
Target price US$0.70
Sign of the Times: Core 3Q13 Results Decline 8% YoY
3Q13 Results Struggle as Expected — HPHT reported 3Q earnings of HK$539.2m, down 8% YoY as volume at Yantian and HIT each fell in the quarter (although the weakness was offset by the acquisition of ACT in March).
Revenue in the quarter edged up slightly YoY, reflecting the better yield mix, while margins deteriorated somewhat, but were padded by better other operating income associated with FX gains at Yantian. Weaker throughput at HPHT’s 50% held COSCO-HIT operation were also weaker, affecting contribution from Associates/JCEs. Without the prefunded CapEx ‘safety net’ going forward (and an anticipated ~US$600m in spending through year end for land associated with Yantian West Port Ph 2), the distribution in FY13 is now expected to decline ~19% YoY (but still yields ~7%).
Yantian Volumes Decline 3.5% YoY, HIT Declines 11.6% (Excluding ACT) — Due in part to difficult year-ago comps, 3Q13 throughput at Yantian declined 3.5% YoY, ending 9M13 relatively flattish. With easier comps in Nov/Dec, we are projecting 4Q13 volume growth to recover slightly, ending the year up ~1%. HIT throughput (excl the ACT acquisition benefit), declined 11.6% YoY in 3Q13 according to mgmt, but improved from the 20% decline in 2Q13, which was significantly affected by the labor issue (resolved in early May).
Easier 4Q Volume Comps, but Decelerating China Macro Outlook May Weigh on Cyclicals — Reflecting the weak 3Q13 results as well as export-related concerns in South China/Hong Kong, we have reduced our FY13/14 estimates by 6% and 10%, respectively. While the recent refinancing of HPHT’s US$3.6bn in debt removes an overhang, we do expect interest expense to rise over the next 12- 18 months; increased tax expense is also anticipated as certain tax holidays at Yantian begin to expire. We have tweaked our TP to US$0.70 rolled forward to 2014.
Publish date: 21/10/13