Hutchison Port Holdings Trust - Indications of throughput recovery in Kwai Tsing
- Hong Kong Kwai Tsing monthly throughput up +10.3% in Nov.
- Co-management agreement a boon.
- FY17 yield of 8.0%.
Signs of a throughput recovery in HK?
- The YoY growth rates for Hong Kong Kwai Tsing monthly throughput have become increasingly positive, from -17.6% in Feb 2016 to +10.3% in Nov 2016, with overall throughput for Jan-Nov 2016 down 3.7% YoY. With this in mind, we have become slightly more positive in our assumptions for HPHT’s HK operations, increasing the YoY throughput growth rate from - 10.5% to -8.0% for FY16 and from 0.0% to +2.0% for FY17.
- On the other hand, with Yantian (YT) container throughput flat for the Jan-Nov 2016 period on a YoY basis, we are less bearish on HPHT’s YT operating outlook, and increase our growth rate from -4.5% to -3.0% for FY16.
- We believe renewed US economic strength and the attendant effect of a US trade route recovery could be a catalyst for further upside in the stock, though higher interest rates are also a concern.
Acquisition of stake in Huizhou Intl Container Terminals
- HPHT’s 51.64%-owned subsidiaries have entered into an agreement to acquire a total of 80% of Huizhou International Container Terminals for HKD 673m. While the size of the acquisition is relatively small (around 3% of HPHT’s NTA), we view it as a positive indication that the management is still actively looking out for inorganic growth opportunities.
Kwai Tsing co-management agreement adds to competitive edge
- Last month HIT, COSCO-HIT and ACT entered into a co-management agreement for collaboration on the operation of the 16 contiguous berths they occupy across Kwai Tsing Terminals. We believe the arrangement will allow HPHT to compete more effectively for contracts with shipping alliances, as it gives HPHT added flexibility in berth and yard planning.
- Looking forward to the rest of 2017, we expect the alliances to negotiate contracts with terminals, a process which may introduce volatility in both throughput and tariff rates.
- As we roll forward our valuations to FY17, our DDM-based fair value remains at US$0.46.
- We find current price levels attractive in combination with the high yield of 8.0% for FY17F. We upgrade HPHT from a Hold to a BUY on valuation grounds.