Hutchison Port Holdings Trust:
Price Target : 12-Month US$ 0.76 (Prev US$ 0.80)
Year to forget; expect better
•4Q13 operating results below, but 2H13 DPU of 22.3HKcts better than expected
•Signs of improvement in US/ EU trade flows; we look for 3-4% volume growth in FY14 in the Trust’s ports
•Management will look to at least maintain DPU in FY14
•Maintain BUY with lower TP of US$0.76
Higher than expected DPU of 22.3HKcts in 2H13 despite poor 4Q results. Total dividend of 41HKcts for FY13 was slightly higher than the 40HKcts guided earlier, but more as a result of better cash management than any improvement in operating performance. In fact, 4Q13 earnings were down 48% y-o-y to HK$335m despite flattish revenues. One-off expenses of about HK$100m and one-off tariff concessions provided at HIT during 4Q13 to customers to account for higher storage costs paid during the industrial action in HK Port in early 2013 contributed to the weak results. Operating expenses were also up by 11% y-o-y, higher than expected. Despite weak results in FY13, operating cash flows were actually up 17% y-o-y and this helped management meet its DPU guidance.
Guidance for stable DPU in 2014, as HK volumes recover. The Trust is looking to deliver at least stable DPU in 2014, driven by expected operating profit improvement as a result of mid-single digit volume growth. The Trust’s HK operations especially, will benefit from a low base effect in FY13, as well as full year contribution from ACT terminals. Yantian Port, which registered 1% volume growth in FY13, is also expected to perform better, as both US and EU trade flows improve on the back of mild improvements in economic activity. Both HK and Yantian Ports have registered growth in US/EU throughput in 2H13 and December 2013 data was encouraging, with Yantian Port seeing 9.5% volume growth whereas HK Port saw 5.4% growth.
Proxy to global recovery theme; prospective yield of 8.2% for FY14 is attractive. We maintain our view that the worst is over for HPHT and reiterate our BUY call. While we should see improving HK operations and a mild uptick in throughput volumes next year, higher operating costs (including staff costs) and higher taxes will impact longer term valuations and hence, we cut our TP to US$0.76 to account for the above.
Publish date: 12/02/14