Hutchison Port Holdings Trust
Share Price US$0.66
Target Price US$0.80
2013: DPU Of HK$0.41 Slightly Beats Guidance Despite Earnings Declining 25% yoy On Higher Tax Rate
HPHT’s 4Q13 and 2013 net profit declined 47% and 25% yoy respectively but fullyear DPU of HK$0.41 slightly beat company’s guidance. HPHT guided 2014 DPU to be higher than 2013’s and we believe this is achievable on more efficient cash flow management (including capex management). Maintain BUY but cut target price to US$0.80 (from US$0.88).
• Revenue softened 0.8 % yoy in 4Q13 and 0.3% yoy in 2013. Revenue including other income was HK$3,122m in 4Q13, -0.8% yoy, and HK$12.4b in 2013 (-0.3% yoy). Throughput in 4Q13 decreased 11.6% in HIT but increased 4.7% yoy in Yantian. The yoy decline in 4Q13 ASP in Hong Kong was due to the concession given to ship liners as compensation for the impact from a strike. ASP in YICT slightly suffered from adverse throughput mix of containers from liners.
• Earnings dropped 47% yoy in 4Q13 to HK$335m. The siginificant decline was mainly due to one-off items and tax rate surging from 8% in 4Q12 to 18% in 4Q13 after the expiry of the tax holiday in YICT and the tax credit being used up. The one-off losses included an exchange loss from the conversion of the HK$ to renminbi, and a write-off of the existing upfront fees upon the US$3.6b bank loan refinancing. Net profit to unitholders fell 25% yoy in 2013 and normalised net profit was down 22% yoy after excluding 2012 performance fee and ACT’s acquisition-related costs.
• DPU of HK$0.41 slightly beat our expectation due to the deferred capex. Despite the significant decline in profit, HPHT still declared a DPU of HK$0.41 in 2013, higher than our expected HK$0.40. After the continued capex delay in West Yantian Port Phase II expansion, capex in 2013 was only HK$706m, substantially lower than its previous projection of HK$1.1b-1.2b.
• 2014F DPU guidance no less than 41 HK cents. HPHT expects 2014 DPU to be higher than 2013’s on: a) mid-single-digit growth of throughput and a potential 1-2% increase in APS (depending on volume), and b) more efficient cash flow management. However, given a further decline in EBITDA in 2014 on a spike in tax rate (2014: 19-20% vs 18% in 4Q13), we still expect capex management to play a key role in achieving the DPU guidance. Yantian is running under a low utilisation of 75% so a further defer in capex is also likely.
• Throughput recovery underway. Yantian’s volume for Asia-Europe route grew in 4Q13 against a 6.5% decline in 9M13. Management is moderately optimistic on throughput growth in 2014 on a further recovery in the US and the EU, and projects a mid-single-digit growth in overall throughput. In addition, we expect massive deliveries of very large containerships (VLCS) and the recent approval of a bonded trade zone in Yantian enhancing Yantian’s competitiveness in future.
• We revise down our net profit forecasts for 2014 and 2015 from HK$2,215m and HK$2,234m to HK$1,646m and HK$1,757m respectively to reflect the increase in effective tax rate from 2014 onwards.
• Maintain BUY but cut target price to US$0.80 from US$0.88, based on a 3-stage DCF model and on our revised earnings estimates. 2014F dividend yield of 8.1% looks attractive among Singapore-listed trust/REITs with large market caps.
SHARE PRICE CATALYST
• Better-than-expected economic indices in the US and Europe.
Publish date: 12/02/14