• Hutchison Port Holdings Trust's FY20 net profit of HK$831m (+57% y-o-y) was 54% above our expectations as throughput volumes were very strong in 4Q20. Distribution of HK$0.12 was also 33% above our expectations.
• We believe Hutchison Port Holdings Trust can sustain this level of higher profitability given its lower cost base and debt levels.
• Room for dividend to be increased given Hutchison Port Holdings Trust’s higher level of earnings and much lower gearing.

Hutchison Port Holdings Trust's FY20 Results and Distribution Smash Expectations

• Hutchison Port Holdings Trust (HPHT, SGX:NS8U)'s FY20 net profit improves 57% y-o-y to HK$831m, which is significantly above our and consensus expectations.
• Overall revenue declined 3.7% y-o-y to HK$10,706m despite a modest improvement in throughput volumes as average revenue per TEU in both Hong Kong and Yantian declined due to increased transshipment mix. Cost of Services Rendered declined 8.1% y-o-y due to savings arising from the Sea Port Alliance arrangement, cost control initiatives, lower fuel price and reduction in operating costs due to the PRC government’s supportive measures to COVID-19.
• Meanwhile, staff costs declined 11% y-o-y due to lower headcount and employee activities and reduction in staff costs due to supportive PRC government measures. There was also a substantial increase (+100% y-o-y) in other operating income mainly due to the wage subsidy from the Hong Kong Employment Support Scheme and gain on disposal of fixed assets.
• As a result of variable costs declining more than revenues, operating profit improved by 2.2% y-o-y to HK$3,507m.

Final dividend of HK$0.077, taking full-year dividend to HK$0.12, was a pleasant surprise.

• As a result of Hutchison Port Holdings Trust’s strong performance, a final distribution of HK$0.077 was declared, bringing full-year distribution to HK$0.12, which is above the HK$0.09 to HK$0.11 guidance at the start of 2020.

Stable FY21 Outlook Ahead

• We project throughput volume growth of 3% for Yantian in FY21F given the still strong export volumes in China expected for the first half of 2021. However, this could be tempered going into the second half given the high-base effect from 2H20 while assuming 1% throughput growth for Hong Kong. This should help to offset the lower government subsidies and support that were extended to the Trust in 2020 and we project earnings to be flat from FY20-FY21F.
• There could be upside to our forecasts if the Trust is able to push through some rate increases given the current buoyant container freight market.

Room for Hutchison Port Holdings Trust's Dividend to be Raised Significantly

• We see two key reasons why Hutchison Port Holdings Trust can and should raise its distribution above HK$0.12 beyond 2021F.
  • Firstly, Hutchison Port Holdings Trust’s gearing ratio is projected to reach a near decade low by FY21F (since its IPO) following a multi-year debt repayment programme.
  • Secondly, Hutchison Port Holdings Trust’s earnings are now projected to recover, on a sustained basis, to above FY18 levels (when distribution was HK$0.17), and close to FY17 levels (when distribution was over HK$0.20).

Source: DBS Research - 9 Feb 2021