Hutchison Port Holdings Trust -
PRICE as of 19 Nov 2013 USD 0.70
PRICE TARGET USD 0.75
Attractive valuation after recent share price correction
■ Despite a poor throughput performance, we believe the 2013 dividend of HKD 0.40 guided by management is achievable.
■ We believe HPHT’s throughput should grow in 2014 due to increased international transhipments via Yantian, the low base of 2013, and improving global trade in 2014.
■ The recent share price pullback has made valuations attractive, in our view. A 2014E dividend yield of 8.4% is close to 1 SD above the company’s historical average.
Downbeat guidance for 2H13
We believe throughput at Yantian Port is likely to continue its YoY decline in 4Q13, similarly to 3Q13. Management blames the high base of last year, as Yantian handled monthly volumes of more than 1mn TEU in both September and October 2012. We forecast flat YoY throughput for HPHT in 2013, due to the labour strike in Hong Kong in 2Q13, and a poor performance by Yantian in 2H13.
Better volumes likely in 2014
We believe HPHT should achieve higher volume growth of 6% in 2014, given that
(1) Yantian‟s international transhipments are likely to increase by 10%, based on P3 alliance‟s current routing plan,
(2) a labour strike caused the low base for Hong Kong throughput in 2013, and
(3) we expect improving global trade in 2014, and forecast transpacific and Asia- Europe trade growing around 5% YoY, compared to a nearly flat YoY performance in 2013.
Negative views on Shanghai Free Trade Zone
We expect Shanghai Port to become the main beneficiary of the free trade zone, as the free port policy should support Shanghai as one of the largest transhipment hubs in Asia. However, HPHT‟s management thinks implementation of the free port policy could take several years due to political and national security concerns, and the impact on Hong Kong should be limited in 2014-15.
We expect few fundamental changes for HPHT and think the recent share price pullback makes its valuation attractive. The 2014E dividend yield of 8.4% is nearly 1 SD above the company‟s historical average and we raise our rating to Outperform (from In-Line) with our PT unchanged at USD 0.75.
Publish date: 19/11/13