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Author: kimeng   |   Latest post: Mon, 24 Sep 2018, 10:09 AM

 

Hutchison Port Holdings Trust: Trade Spat Affects <2% of Throughput

Author:   |    Publish date:


  • Time to BUY
  • Overreaction to NDRC, trade spat
  • Keeping our FV of US$0.43

US-China Trade Spat Fears Overblown

Goods targeted in the proposed tariffs make up around 2% of YICT’s throughput and 1% of HPHT Kwai Tsing’s throughput, based on analysis done by HPHT’s management of the product types they handle. Even if all of the throughput related to these goods were to cease completely as a result of the tariffs (which may or may not be implemented), a scenario which we consider unlikely in itself, we estimate that the impact on HPHT is less than 2%.

1Q18 Shows Little to No Impact From NDRC Regulations

Recall that HPHT’s unit price fell 10% the week following NDRC’s announcement of a 30% cut in the “list price” for Yantian ports, a measure that we asserted would be largely insignificant to HPHT’s operational outlook. We believe 1Q18 results indicate that these fears have indeed been overblown – revenue/TEU for YICT fell only 1% YoY in 1Q18, which in turn was mainly a result of continued impact from shipping line M&A and a change in throughput mix, countered by RMB strength.

Focus on Key Catalysts

Overall, 1Q18 results were in line with expectations. 1Q18 revenue was up 3.5% YoY to HK$2.7b or 23.4% of our full-year forecast, consistent with seasonal variation. 1Q18 PATMI came in at HK$145.4m or 23.3% of our full-year forecast, down 12.9% YoY, mainly due to the increase in interest costs.

Throughput for HPHT’s ports increased 5% YoY during the quarter, with YICT’s throughput increasing 9% due to growth in empty and transshipment cargoes, and Kwai Tsing throughput increasing 1% on better transshipment volume.

Going forward, we believe the key catalysts for HPHT’s unit price rerating include

  1. an amelioration of NDRCrelated fears from tariff stability
  2. an alleviation of trade spat worries from continued throughput growth and
  3. a slowdown in YoY ASP declines in 2H18 from the low base in 2H17.

After adjustments, our fair value remains at US$0.43, which represents an upside of 30.3% against 13 Apr’s close of US$0.33. Management continues to guide 20-23 HK cents for FY18 DPU and HPHT is trading at a 8.1% FY18F yield as of 13 Apr’s close. Re-iterate BUY.

Source: OCBC Research - 16 Apr 2018

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