With the new year comes “new highs” for Hutchison Port Holdings Trust, as higher dividends are expected from FY2022 on a “sustained recovery ahead”, says DBS Group Research.
Hutchison Port Holdings Trust (HPH Trust) has controlling interests in container port assets located in two of the world's busiest container port cities by throughput: Kwai Tsing in Hong Kong and Yantian Port in Shenzhen, China.
“We believe that HPH Trust’s share price has more room to re-rate in 2021 given its firm earnings recovery momentum. We also see further upside potential to our target price if the company confirms its intention to raise its dividend payout for FY2022 and beyond after its debt repayment programme ends in FY2021,” says DBS Group Research analyst Paul Yong in a Feb 1 note.
Yong is maintaining “buy” on HPH Trust with a raised target price of 27 US cents (36 cents) from 22 US cents.
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The Trust ended FY2020 on a high note, thanks to firm 2HFY2020 volumes, notes Yong, raising FY2020 and FY2021 earnings by 10% and 7% respectively after factoring in higher throughput volume assumptions. “We expect exports out of China to remain firm for at least the first half of 2021 as many parts of the world remain in lockdown while a synchronised global recovery in the second half would also be a boost,” he adds.
Yong highlights that major exporters like Malaysia and some parts of Europe are going into fresh lockdowns to battle new waves of infections, and manufacturing production could drop sharply. “With China picking up the slack, its exports should continue to grow. Hence, we expect to see China’s PMI: New Export Orders to remain in expansion mode in 1HFY2021, with a positive reading of 50.2 for January 2021.”
Yantian’s December throughput jumped 7.4% y-o-y to 1.232 million Twenty-foot Equivalent Units (TEUs), continuing the strong rebound in volumes seen since June.
In the first half of 2020, volumes at Yantian dropped 12.2% y-o-y but increased by 14.6% in the second half.
Meanwhile, Kwai Tsing’s December throughput jumped 10.3% y-o-y to 1.317 million TEUs, continuing the strong rebound in volumes seen since June.
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In the first half of 2020, volumes at Kwai Tsing dropped 2.6% y-o-y but increased by 5.8% in the second half. In 2019, HPH Trust’s volumes in Hong Kong accounted for 70% of Kwai-Tsing’s volumes.
In addition, Yong notes that Biden’s win should also ease US-China trade tensions and help to stabilise China’s exports to the US.
Yong is optimistic on dividends on the Trust’s improving earnings outlook bolstering cash flow and balance sheet. “We are confident that the Trust will raise its DPU payout from FY2022F onwards. Including dividends paid to non-controlling interests (of Yantian Port), we expect HPH Trust to raise its total dividend payout to 47% in FY2022F, from 36-38% of EBITDA from FY2019-FY2021F. This would still be significantly below the Trust’s payout before 2017.”
HPH Trust has a market capitalisation of US$1.87 billion, and major shareholders include Hutchison Ports (27.6%) and Temasek Holdings (14.0%).
As at 11.22am, units in HPH Trust are trading 1 US cent higher, or 4.65% up, at 22 US cents.
