Hutchison Port Holdings Trust has reported a 37% drop in earnings for FY2022 but Paul Yong and Tabitha Foo of DBS Group Research, citing prospects of higher distribution in the coming couple of years, have kept their “buy” call and 37 US cents target price.
At HK$1.1 billion, earnings for HPHT’s FY2022 ended Dec 30 is 8% below Yong and Foo’s estimate. Revenue in the same year was down 8% y-o-y to HK$12.2 billion because of lower throughput volumes at the terminals under HPHT.
However, HPHT is seen to report better operational performance for the current FY2023.
“With China finally relaxing Covid control measures and port congestion easing globally, we expect operations at Yantian and the Hong Kong ports to normalise over the next few months,” the analysts write in their Feb 8 note.
Despite the lower earnings, HPHT has kept its full year FY2022 distribution at 14.5 HK cents – same as that paid for FY2021 - which gives a yield of around 9%.
The trust manager has guided for a FY2023 payout of 14 to 15 HK cents.
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However, with on-going paring down of debt, lower interest rates, the trust’s gearing level can reach an all-time-low in the current FY2023.
As such, the DBS analysts see a possible distribution of 15 HK cents for the current FY2023 – which will be at the top end of the guidance.
The DBS analysts further expect distribution to be increased to 20 HK cents per unit for the coming FY2024, with the Fed’s rate hikes seen to have stopped by then.
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Separately, Paul Chew of Phillip Securities observes that the FY2022 payout of 14.5 HK cents is both "attractive and likely sustainable".
He says that given free cash flow of around HK$5.5 billion, HPHT can cover the payout of around HK$1.3 billion, debt repayment of around HK$2 billion, and another HK$1.2 billion in dividends to be paid to non-controlling interests.
While the current 1HFY2023 is "challenging", Chew is seeing a strong recover in the second half of the year, as US retail replenishes inventory and the China re-opening is in full swing.
As at Feb 8, HPHT traded at 20 US cents, down 4.76% for the day.
