SINGAPORE (Oct 31): DBS Vickers is maintaining its “hold” on HPH Trust with lower target price of US$0.39 after 3Q earnings came in below expectations.
HPH Trust’s 3Q17 earnings were very weak, says DBS. A disappointing performance in Hong Kong due to a double-digit decline in average selling prices, as well as higher interest costs, led to a 37% y-o-y fall in net profit for HPH Trust in 3Q17.
See: Hutchison Port Holdings Trust's 3Q EPS drops 37.1% to 3.1 HK cents
“As a result, we cut FY17 and FY18 net profit forecasts by 30% and 21% respectively while also lowering our DPU forecast from HK 22 cents in 2017 and 2018 to HK 20 cents for both years,” says analyst Paul Yong in a Tuesday report.
Yong’s target price is based on a discounted cash flow valuation framework with weighted average cost of capital of 7.4% and terminal growth rate of 0%. After cutting FY1 DPU forecast to HK 20 cents, we see the prospective yield of 5.8% as being fairly valued.
“We see HPHT as fairly valued given its current prospective yield of 5.8% as the group is guiding for FY17 DPU to be at the lower range of the HK20-22 cents range following weak 3Q results,” says Yong.
He expects DPU for FY18 to stay flat from FY17 as group profitability remains under pressure, with ROEs projected to be at just 3% although HPHT’s share price could re-rate if throughput volumes can more than offset a decline in average tariff rates in the quarters ahead.
Units in HPH Trust are 44 cents.
