• Highly volatile stock
• Take a look at fundamentals
• Attractive risk-reward

Still Room to Go After Yesterday’s Rally

After we re-iterated our BUY call on HPHT on 1 Jun, the stock has been up 10.9% in less than a week and up 7.0% yesterday alone. Yet, HPHT is still down 26.5% YTD mainly due to the

1. NDRC announcement of a 30% cut in the “list price” for Shenzhen ports,
2. US-China trade tensions and
3. most recently, the removal which has prompted selling from index and institutional funds.

Based on what has been announced so far, we see little impact operationally for the first two factors and no change in fundamentals following the third (see report appendix).

Closer Look at the Factors Prompting HPHT’s Unit Price Decline

First, for NDRC, we estimate that HPHT’s Yantian is already charging below the new list price and believe 1Q18 results indicate that these fears have indeed been overblown. Second, with regard to the US-China trade war, the list of goods targeted in the proposed US tariffs on US$50b of Chinese goods make up <2% of HPHT’s throughput. Furthermore, we believe it would be unrealistic to assume that this throughput related to these goods would cease completely as a result of tariffs.

Lower FV; Still Maintain BUY

Government-related actions remain highly unpredictable and volatile. We note that it is possible for

1. the NDRC to come back with more cost reduction measures within the logistics industry including ports, and for
2. a worsening in the US-China trade situation.

We keep our forecasts but after updating our beta assumptions, our cost of equity increases from 8.8% to 10.0%, such that our fair value decreases from US$0.43 to US$0.375.

With regard to the longer term outlook for HPHT, we note that distributions are currently “depressed.” Cash that could be distributed is currently being used to voluntarily pay back HK$1b of debt (~11.5 HK cents per unit) annually from FY17 to FY21 to help offset the rise of interest rates.

Overall, we still see significant value at current prices. As at 6 Jun’s close, there is a 22.4% upside to our fair value with an 8.8% FY18F yield. Re-iterate BUY.

Source: OCBC Research - 7 Jun 2018