SINGAPORE (Feb 6): OCBC Investment Research is upgrading its call on Hutchison Port Holdings Trust (HPHT) to “buy” from "hold" with a slightly higher fair value of 43 US cents (57 cents) compared to 42 US cents previously.
This comes after the trust’s manager on Monday declared a distribution per unit (DPU) of 20.60 Hong Kong cents for FY17, in line at 98.1% of OCBC’s full-year forecast.
See: Hutchison Port Holdings Trust posts 33.1% decline in 4Q DPU to 11.1 HK cents
In a Tuesday report, lead analyst Deborah Ong says she believes HPHT’s recent unit price correction of 7% is too steep, considerating that its 50%-owned subsidiary Yantian International Container Terminals (YICT) contributes less to the trust’s bottomline than its topline, and thus sees this as an opportunity to buy units.
To recap, HPHT’s unit price correction results from the market’s reaction to the National Development and Reform Commission’s (NDRC) recent announcement of reducing the list price, or reference tariff rates, for origin & destination foreign trade containers at Shenzhen-Yantian ports.
This has in turn sparked investor concerns on the potential impact on HPHT’s dividends due to its exposure to the ports via YICT.
In Ong’s view, YICT’s average selling price (ASP) is already about 50% below the new list price tariff, which allows the port operator some buffer in negotiations – therefore implying only a slightly-negative impact on HPHT.
“We also believe the bulk of sharp ASP declines is behind us (-10% in FY17) though we expect mild softness in tariff rates going forward,” explains Ong.
Going forward, the analyst forecasts single-digit throughput growth in FY18, with the trust trading at a 7% FY18F yield based on its Monday closing price of 37.5 US cents.
“We have reduced our revenue per TEU growth rate for FY18 from -2% to -4%. In our view, the main headwind for HPHT is the increase in interest costs; we currently assume three rate hikes each for 2018 and 2019,” she adds.
As at 10:48am, units of HPHT are trading 1 cent lower at 36 US cents, which translates to a FY18F distribution yield of 6.72%.
