DBS Group Research has kept “buy” on Hutchison Port Holdings Trust (HPH Trust) with a higher target price of 33 US cents (45 cents) from 32 US cents previously.
The higher target price, which assumes a weighted average cost of capital (WACC) of 8.0%, comes on the back of strong throughput growth and resilient earnings, says analyst Paul Yong.
Furthermore, now would be a good time to accumulate units in the trust due to undemanding valuations.
See also: Will a Biden victory be a re-rating catalyst for Hutchison Port Holdings Trust?
“HPH Trust is currently trading at 0.6 times P/BV, which is [around] 0.5 standard deviation above its five-year mean, against a return on equity (ROE) of 4.3%. It is an attractive yield play, with the highest FY2021 dividend yield of 8.2% among the three port companies under our coverage,” writes Yong.
In a Sept 29 report, Yong says he has raised his FY2021 throughput growth assumptions from 3% to 4% for Yantian and 1% to 2% for Kwai Tsing due to year-to-date (y-t-d) volumes at both Yantian and Kwai Tsing above his expectations.
To be sure, Yantian has seen a 9.0% y-o-y increase in volumes y-t-d, while Kwai Tsing has seen a 3.4% y-o-y growth so far.
“We also lift our FY2021/FY2022 earnings by 33%/10% as 1HFY2021 earnings outperformed significantly. We continue to like HPH Trust as we believe that earnings have bottomed and investors can look forward to a sustained period of recovery,” he says.
In addition, Yong is positive on the trust as its dividend payout for the FY2021 has seen its highest level in three years. As it is, the trust’s distribution per unit (DPU) guidance stood at the high end of 11 to 13 Hong Kong cents (1.92 cents to 22.7 cents), with the potential to be higher at 14 Hong Kong cents if earnings remain firm.
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The trust declared an interim dividend of 6.5 Hong Kong cents on the back of robust 1HFY2021 results, which represents an increase of over 50% y-o-y from the 1HFY2020.
“We believe that higher dividends in the medium term are also on the cards, powered by high operating leverage and lower finance costs,” says Yong.
That said, Yong admits that his forecasts for the FY2021 are on the lower end, compared to estimates from the consensus.
“We remain conservative, leaving upside risk to our throughput volume forecasts for FY2021.”
To this end, a global recession would materially impact trade and throughput numbers for the trust, which would then have an impact on its earnings, cash flows and dividends.
Units in HPH Trust closed 1 US cent lower or 4.17% down at 23 US cents on Oct 1, or an FY2021 P/B of 0.6 times.
