Hutchison Port Holdings Trust - Look forward to better data (DBSVickers)

BUY US$0.66 STI : 2,789.04

Price Target : 12-Month US$ 0.95 (Prev US$ 1.05)

Reason for Report : New operating data

Potential Catalyst: Volume growth, macro data

DBSV vs Consensus: Our DPU forecasts for FY12/13 are 5% lower than consensus owing to more conservative volume and tariff assumptions

• Yantian numbers in August make for poor reading; subsequent months should be better

• Trade contraction is unlikely in 2012; hence current valuations look oversold

• Maintain BUY with lower TP of US$0.95, as we lowered our FY11/12 DPU estimates by 4.5%/6.5%

Yantian numbers disappoint. Yantian Port’s throughput volumes fell 6.9% y-o-y in August 2011. While the drop was expected, the quantum surprised us. YTD in 2011, Yantian Port’s

throughput was up just 0.5% y-o-y, well below initial expectations. In view of the weaker peak season, and ongoing economic uncertainties, we thus cut our volume growth assumptions at Yantian to 2% and 4% for FY11 and FY12. We also lower our growth assumptions at HIT by 1ppt, and flatten our tariff growth assumptions, resulting in 4.5%/6.5% decline in FY11/12 DPU projections, to 5.7UScts (annualised) and 6.0UScts respectively.

But we continue to expect only sub-par growth and not negative growth in GDP/trade. Given Yantian Port’s exposure to export volumes to US and EU economies, growth are expected to remain anaemic in the near to medium term, but we are decidedly not looking at the kind of recession that HPH Trust’s current valuations seem to imply. Our economist believes that in terms of numbers, the US could grow at 2.3-2.4% (QoQ, saar) rate in 3Q11 and 4Q11, which is below average (3.0%) but a far cry from recession. Real consumption growth in the US is on track at 2.4% (QoQ, saar) in 3Q11 and retail inventory to sales ratios remain at alltime

lows.

Maintain BUY, TP cut to US$0.95. Even with our lower DPU projections, the Trust is still trading at attractive 8.5-9.0% yields. We think this offers a very good entry point with limited downside even in the case of a deep recession and contraction in trade. We reckon

current share price is pricing in a DPU (and by extension, EBITDA) decline of close to 22% in FY12. Compare this to 2009 – when global container trade contracted by an exceptional 9% – and EBITDA had declined by only 17%.