SINGAPORE (Feb 13): OCBC has cut Hutchison Port Holdings Trust to a “hold” from “buy”, recommending investors to collect HPHT at US$0.41 (58 cents) and below.
The downgrade comes after management dropped its FY17 DPU guidance to 20-23 HK cents from 25-27 HK cents after taking into account voluntary debt amortisation and possible interest rate hikes.
“While we believe HK container throughput has turned a corner, we are slightly less optimistic on the extent of throughput growth HPHT will enjoy,” says analyst Deborah Ong in a Monday report.
“We currently project a 3% decline in revenue/TEU for FY17, says Ong, “We also note HPHT has been losing market share in HK, from 75.5% for FY15 to 71.0% for FY16.”
While HK Kwai Tsing container throughput rose +10.5% y-o-y for 4Q16, HPHT’s HK throughput only increased +1.6% y-o-y.
Ong says there is also no certainty that HIT’s HK$430 million rates refund given last year will be used to soften the impact of the DPU drop.
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Assuming no buffer applied by the refund, OCBC’s DPU forecast falls to 23.4 HK cents.
“This is slightly higher than the range cited by the management, partly as we have input expectations for lower capex,” says Ong.
To recap, HPHT’s FY16 results were in line with expectations. FY16 revenue dropped 5.6% y-o-y to HK$11.9 billion, or 99% of OCBC’s forecast, while operating profit dropped 3.0% y-o-y to HK$4.2 billion, or 102% of its forecast.
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DPU for the year came up to 30.60 HK cents, or 99% of OCBC’s forecast. Its performance was in line with OCBC’s expectations as the 8% decline in HPHT’s HK throughput and 4% in its YICT throughput were in line with the forecast of an 8% decline and 3% decline by the research house respectively.
Looking ahead, Ong expects Hutchison Port’s existing business relationships with shipping lines under alliances are likely to remain intact, though pricing will be under pressure as lines will negotiate for the lowest rates offered to other members in the alliance.
“HPHT is trading at a FY17 yield of 6.8%. Our DDM-based fair value drops from US$0.46 to US$0.45. While the FV change has been minimal, we downgrade HPHT from a Buy to a HOLD given the lower expected FY17 yield,” says Ong.
Units of HPH Trust USD are down 3 cents or 5.7% at 41.5 US cents.
