Hutchison Port Holdings Trust
Rating: Neutral (price target US$0.75)
We see a few uncertainties in 2014 on the volume outlook for the following reasons: 1) the formation of P3 by the world's three largest container shipping companies may lead to reduced trans-shipment volume and less bargaining power for ports; 2) Hong Kong's position as the regional trans-shipment hub may be challenged by Shanghai, as the latter benefits from the Free Trade Zone policy; and 3) Yantian faces continuing competition from West Shenzhen ports and Nansha in Guangzhou. Furthermore, 2014 may be further challenged by Yantian's rising effective tax due to the expiry of tax holidays.
A potential catalyst is better-than-expected volume growth at both Hong Kong and Yantian, benefitting from a global trade recovery and hence China's export recovery.
We base our 12-month price target of US$0.75 on the dividend discount model, assuming a COE of 8.2%. Despite uncertainties in 2014, we think the current valuation is reasonable at a dividend yield of 6% in 2013E, and hence our Neutral rating.