Hutchison Ports Holdings Trust -
Target Price: USD0.79
Hutchison Ports Trust (HPHT)’s 9MFY13 earnings were in line with our expectations. Management remains cautious on the company’s outlook for 2014. Boosting yields remains priority in the current challenging times, with the impending P3 alliance giving rise to more concerns. We maintain NEUTRAL on the stock, with an unchanged USD0.79 FV, as the stock’s 7.5% yield for FY14 still looks attractive.
- Results in line. HPHT’s 9MFY13 earnings were below consensus but broadly in line with our expectations, accounting for 73% of our full-year forecast, with revenue comprising 74% of our estimate. As such, we make no changes to our forecasts. 3QFY13 earnings slipped 8.4% y-o-y, dragging its cumulative core earnings 13% lower YTD. The y-o-y earnings drop was attributed to a combination of slower throughput and higher staff costs following a union strike in 1QFY13. Q-o-q earnings came in seasonally stronger due to peak season demand.
- Container throughput still languishing. Container volume was down 1.8% y-o-y in 3QFY13 and 2% in 9MFY13. The weaker 3QFY13 was due to typhoons and a volume drop at Yantian Port, but HIT (Hong Kong International Terminal) managed to cushion the impact with flat y-o-y volume. While trade to/from the US and Europe picked up in 3Q, this was merely the result of a single-digit increase in laden container volume, which was more than offset by a larger decline in empty cargo, possibly due to liners’ efforts to minimize inefficiencies.
- Caution prevails. Management remains cautious on a strong recovery in throughout volume. Instead of chasing volume, HPHT’s primary objective is to boost container yield given the need to pass on its higher staff costs. Meanwhile, the impending P3 shipping alliance – which has yet to receive regulatory approval – is giving rise to more uncertainty as well as a risk that transshipments could drop further next year. With HIT seeing a strong pickup next year, we expect overall throughput to grow by 6% and 4% respectively for 2014 and 2015 (2013: +1%). There is scope for earnings downside should throughput fall below expectations in the months ahead.
- Maintain NEUTRAL at an unchanged DCF-based FV of USD0.79. At the current price, the stock’s yield remains a decent 7.5% for FY14.
Publish date: 22/10/13