Is the storm over for Hutchison Port?

Jude Chan

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.

(See  HPH Trust posts 14 HK cents DPU for 1H16)

Revenue for 2Q16 dropped 6.1% to HK$2.9 billion ($505 million) on lower throughput, though this was mitigated by a 0.8% increase in tariff rates.

Meanwhile, HPH Trust&rsquo s 2Q net profit fell 14.3% to HK$342.7 million.

But OCBC Investment Research&rsquo s lead analyst Deborah Ong says this was &ldquo within expectations&rdquo and makes up for 24.8% of the research house&rsquo s full-year forecast.

As such, OCBC is maintaining its &ldquo hold&rdquo recommendation on HPH Trust with a fair value estimate of 46 US cents.

&ldquo 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,&rdquo 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 &ldquo down but not out&rdquo .

&ldquo 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,&rdquo he says.

In addition, Yong says HPH Trust could be an attractive defensive yield play.

&ldquo 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%,&rdquo says Yong.

This is supported by cash flow generated from HPH Trust&rsquo s port operations in Shenzhen and Hong Kong, where it has a leading market share, Yong adds.

DBS is keeping HPH Trust at &ldquo buy&rdquo with a lower price target of 56 US cents, down marginally from 57 US cents previously.

Units of Hutchison Port Holdings Trust closed 2.1% lower at 48 US cents.