Background: Hutchison Port Holdings Trust (HPHT) is the largest port operator in the Pearl River Delta region, which in total handled 21.1m TEUs last year, representing 54% of the entire volume handled at deepwater ports. Its business activities mainly involve developing, operating and managing deepwater container ports.
Recent development: HPHT had a better-than-expected set of 2Q results with net profit attributable to unitholders 13% higher than forecast at HK$653.7m. This is due to the cost-cutting measures operationally as well as an increase in contribution from its JV, COSCO-HIT. This implies a distribution rate of HK14.3cents per unit, totalling HK$1,245.4m.
Our view
Largest IPO of the year. HPH was the talk of the town as the largest IPO showcased on SGX this year, with top port operator Hutchison Whampoa as sponsor, as well as an ambitious goal to raise S$5.4b for a three-stage expansion of Yantian Port in East Shenzhen by 2015 and to pay off maturing debt. The trust had forecast EBITDA margins of around 60% for FY11 and FY12. However, investors questioned whether margins were sustainable given the maturing ship-trading environment.
Key concerns. First, Pearl River Delta ports are losing ground to Yangtze ports due to rising labour costs forcing manufacturing businesses to relocate. In addition, China’s PMI dropping 4.2% YTD and weakening consumer demand in the US and Europe are likely to indicate lower throughput volumes in the second half of the year. With the looming possibility of the US losing its triple A rating, the US$ may face more downward pressure in the long run, thus raising forex risks for HPHT.
Projected yields now more attractive. As a business trust, HPHT is committed to paying out 100% of its distributable income in Hong Kong dollar. FY11’s income is estimated to be HK$6,179.65m, which translates to US$5.90 or HK45.88 cents annualised and provides a yield of 7.9%. For FY12, the forecast is US$6.59 or HK51.24 cents, implying an 8.8% yield. The stock currently trades at 27.6x PER and 0.8x P/B.
Key ratios…
Price-to-earnings: 27.6x
Price-to-NTA: 1.1x
Net cash/(debt) per share: HK$2.2
Net cash as % of market cap: 20.9%
Share price US$0.745
Issued shares (m) 8,708.88
Market cap (US$m) 7,402.55
Free float (%) 80.1%
Recent fundraising activities Mar’11 - IPO at US$1.01/unit
Financial YE Dec-31
Major shareholders Hutchinson Whampoa (27.6%), PSA (10.4%), Capital Group (10.05%)
YTD change n.a
52-wk price range US$0.780-1.020
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