SINGAPORE (July 29): Hutchison Port Holdings Trust (HPH Trust) has so far not been a safe port of call for investors.
HPH Trust on Wednesday declared a 14 HK cents distribution per unit for the first half of 2016, a 10.8% decline from the DPU of 15.7 HK cents in 1H15.
Revenue for 2Q16 dropped 6.1% to HK$2.9 billion (S$505 million) on lower throughput, though this was mitigated by a 0.8% increase in tariff rates.
Meanwhile, HPH Trust’s 2Q net profit fell 14.3% to HK$342.7 million.
But OCBC Investment Research’s lead analyst Deborah Ong says this was “within expectations” and makes up for 24.8% of the research house’s full-year forecast.
As such, OCBC is maintaining its “hold” recommendation on HPH Trust with a fair value estimate of 46 US cents.
“Looking forward, we expect the industry to remain depressed in FY17 and our forecasted throughput growth for FY17 drops from +4.5% to -0.8% y-o-y,” says Ong.
HPH Trust is also looking at a debt repayment plan from 2017, where it will repay a minimum of HK$1 billion of debt annually to lower its gearing level and improve its interest coverage ratios in a rising interest rate environment.
DBS Vickers Securities analyst Paul Yong estimates that this could potentially lower distributable income by 11-13%.
However, Yong believes HPH Trust is “down but not out”.
“While a planned debt repayment programme from 2017F onwards could cap DPU growth in the medium term, a rebound in trade volumes and throughput as well as a stronger balance sheet thereafter should support longer-term expansion,” he says.
In addition, Yong says HPH Trust could be an attractive defensive yield play.
“DPU is projected to be lower at close to 30 HK cents in FY16F from 34.4 HK cents in FY15, but still offers an attractive yield of close to 8%,” says Yong.
This is supported by cash flow generated from HPH Trust’s port operations in Shenzhen and Hong Kong, where it has a leading market share, Yong adds.
DBS is keeping HPH Trust at “buy” with a lower price target of 56 US cents, down marginally from 57 US cents previously.
As at 3.23pm, units of Hutchison Port Holdings Trust is trading 2.1% lower at 47.5 US cents.