• Throughput volume growth for Yantian and Kwai-Tsing in 2H20 was at 14.6% and 5.8% y-o-y respectively.
• Hutchison Port Holdings Trust (SGX:NS8U) is on track for strong 2H20 earnings, led by a rebound in throughput volumes since June.
• China’s Purchasing Managers’ Index (PMI): New Export Orders Index remained firm at 50.2 for January 2021.

Ended FY20 on a High Note, Thanks to Firm 2H20 Volumes

China’s exports to remain firm for at least 1H21.

• Major exporters like Malaysia and some parts of Europe are going into fresh lockdowns to battle new waves of infections and hence manufacturing production could drop sharply. With China picking up the slack, its exports should continue to grow. Hence, we expect to see China’s PMI: New Export Orders to remain in expansion mode in 1H21, with a positive reading of 50.2 for January 2021.

Synchronised global recovery in 2H21.

• Assuming mass inoculation campaigns go according to plan in key countries, there would be a more complete global economic recovery in 2H21. Exports would be boosted as a whole and China’s exports should still see growth.
• Yantian’s December throughput jumped 7.4% y-o-y to 1.232m TEUs, continuing the strong rebound in volumes seen since June. In the first half of 2020, volumes at Yantian dropped 12.2% y-o-y but increased by 14.6% in the second half.
• Kwai-Tsing’s December throughput jumped 10.3% y-o-y to 1.317m TEUs, continuing the strong rebound in volumes seen since June. In the first half of 2020, volumes at Kwai-Tsing dropped 2.6% y-o-y but increased by 5.8% in the second half.
• In 2019, Hutchison Port Holdings Trust’s volumes in Hong Kong accounted for 70% of Kwai-Tsing’s volumes.

2H20 volumes at both Yantian and Kwai-Tsing ahead of expectations, on track for strong FY20 earnings.

• We have raised our Hutchison Port Holdings Trust's FY20F and FY21F earnings forecast by 10% and 7% respectively after factoring in higher throughput volumes for 2H20 and 2021F. In the medium term, Biden’s win should also ease US-China trade tensions and help to stabilise China’s exports to the US.
• Hutchison Port Holdings Trust’s net debt-to-EBITDA ratio is projected to improve from 3.9x as at end-FY17 to 3.1x by end-FY21F, thanks to decreasing overall debt from an extensive debt repayment programme and stabilising EBITDA. With its net debt-to-EBITDA ratio expected to reach a near decade low in FY21F, we expect the 5-year HK$1bn per annum debt repayment plan to end in FY21F and for the Trust to resume a higher dividend payout from FY22F onwards.

More Confident of Higher Dividends From FY22F Onwards

• With an improving earnings outlook bolstering the Trust’s cash flow and balance sheet, we are confident that Hutchison Port Holdings Trust will raise its DPU payout from FY22F onwards. Including dividends paid to non-controlling interests (of Yantian Port), we expect Hutchison Port Holdings Trust to raise its total dividend payout to 47% in FY22F, from 36-38% of EBITDA from FY19-FY21F. This would still be significantly below the Trust’s payout before 2017.

Source: DBS Research - 1 Feb 2021