Company Coverage - Hutchison Port Trust

                                                                             From Company's Prospectus

1. Business Description

Container port business trust backed by HK Superman, Li Ka-Shing. Listed on the SGX, HPHT is sponsored by Hutchison Port Holdings (HPH), the global leader in container port industry by throughput and a subsidiary of Hutchison Whampoa Limited, who is ultimately owned by Li Ka-Shing. 

Portfolio consists of controlling interests in world class deep-water container port assets in HK and Shenzhen. HPHT’s portfolio consists of controlling interests in world class deep-water container port assets, namely Hongkong International Terminals (HIT) and COSCO-HIT Terminals (COSCO-HIT) in Kwai Tsing Port, Hong Kong; and Yantian International Container Terminals Limited (YICT) in Shenzhen Port, PRC. The assets also comprise of certain port ancillary services and river ports complementary to the deep-water containers ports operated by HPH Trust.

                                                                           From Company's Prospectus

2. Business Operations

Strategically local key assets. HPHT owns strategic located deep-water container ports located in Kwai Tsing, HK and Shenzhen in the PRC. Collectively, these terminals have a combined through put of 21.9m twenty-foot equivalent units (TEU) in 2011, which compared favorably with PSA Corp, the world busiest port, which handled 29.4m TEUs in the same period.

·         HPHT’s business model is based on rendering port-related services (container handling & storage) for:

a.     Origin & Destination – Import/export from the local market

b.     Transshipment – Containers are offloaded from a vessel with the intention of loading up another connecting vessel without leaving the port premises

3. Financial Highlights

1Q13 Summary

1Q13 revenue was up 1.1% yoy at HK$2,867m (1Q12: HK$2,836m). This came on the back of its flatish throughput volume growth which showcases its resilience

1Q13 net profit declined by 6.5% largely due to the additional expenses incurred in relation to its recent acquisition of ACT.

Adjusting for this one time acquisition, HPHT’s overall net profit would have increased 1.6% yoy.

Operating margins continued to remained strong at 31.2%

                                                                      From Company's 1Q13 financial statements 

Trading at a discount with NAV of HK$7.48 (S$1.23) as of 1Q13. At current valuation of approximately S$0.745, HPHT is trading at a deep discount of approximately 39.5%!! This looks cheap on a pure valuation basis.

                                                                    From Company's 1Q13 financial statements 

4. Investment Highlights

Cheap Valuation. As mentioned above, HPHT is trading at a deep discount to its NAV. However, adjusting for the Goodwill out of its Financial statement, it will be approximately HK$2.6 (S$0.428). Nevertheless, this is less of a worry here (although it’s still something to take note) because what you are paying is for a true world class asset.

World-class facilities strong competitive advantages. HPHT’s ports are strategically situated in harbors with natural and direct deep-water channel approaches. Its port also owns free port status at the central of major trade routes and long contiguous berths, making them the preferred transhipment hub in the region.

In addition, Yantian is benefits from the region’s manufactured export flows and increasing import cargoes, given its proximity to the major industrial and population centres in the Pearl River Delta.

HPHT also possesses world class facilities, delivering consistent superior productivity throughput.

Decent assets, with strong backing. Obviously, the location is superior and it gives you exposure into the economic growth of China and its region. In addition, it is back by Hutchison Whampoa, so there is definitely no monkey business behind it given such a good and strong backing from the superman himself.

5. Investment Weakness

Carry trade is over. With the Fed announcing its tapering measures, the carry trade is definitely over! Now dividend stock is out of favour. Look at what happening to the REITs, thus HPHT will suffer on a technical aspect.

Inherent cyclical industry. The port business is a highly cyclical business which is dependend on global trading volumes and regional & global economic condition.

Potential FX risk? Here’s the problem. HPHT majority revenue is in HKD and USD while they pay CNY as their expenses. FX mis-match? Maybe.

6. Conclusion

HPHT and a lot of other REITs has been selling down. At current share price of S$0.745, and a past annual dividend payout of S$0.084 cents, it translates to above 10%.

However, do note that HPHT has deferred capex investment for last year to achieve its stated dividend payout. So assuming stable operating performance, below provide you a sensitivity scenario on how different capex amount will affect the yield:

Thus invest base on your appetite, personally I will be greedier and will wait for it to go lower before I grab it. But you can't catch the bottom; at this level I think it’s already pretty attractive.