As US media outlets call a victory for Democratic candidate Joe Biden in this year&rsquo s US general elections, markets expect an easing of trade tensions as the multilateralist former Vice-President replaces tariff champion Donald Trump. DBS analyst Paul Yong hence predicts further re-rating for Hutchison Port Holdings Trust, which has controlling interests in two of the world&rsquo s   busiest container port cities by throughput -   Kwai Tsing, Hong Kong and Yantian Port, Shenzhen, China.

 

&ldquo We have raised our FY2020 and FY2021 earnings [forecasts] by 10.3% and 3.4% respectively after factoring in higher throughput volumes for 2H20,&rdquo Yong writes in a broker&rsquo s report on 17 November. After declines of 12.2% and 2.6% y-o-y at Yantian and Kwai-Tsing respectively in 1H2020, volume growth for 10M2020 came in at 0.2% for Yantian and 0.5% for Kwai Tsing as throughput volumes saw strong rebounds since June. 

 

In October alone, Yantian&rsquo s throughput volume jumped 27% y-o-y to 1.148 million TEUs, with volumes soaring 16.1% from July to October. Kwai Tsing&rsquo s October throughput on the other hand rose a more modest 3% y-o-y to 1.249 million TEUs. Yong is therefore maintaining his &ldquo buy&rdquo call on the counter at a higher target price of US$0.22 ($0.30). 

 

Yong thus anticipates stronger dividends from FY2022 onwards, with anticipated improvements in earnings likely to bolster Hutchison&rsquo s cash flow and balance sheet. The trust is also unlikely to extend its 5-year HK$1 billion ($173.3 million) per annum debt repayment plan beyond 2021, allowing it to pay out higher dividends. The DBS analyst therefore sees Hutchison raising its total dividend payout to 47% in FY2022   at HK$0.16 per share from 36-38% of EBITDA from FY2019-FY2021. 

 

Current valuations of the share are also relatively attractive. Hutchison&rsquo s price-to-book ratio and price-to-earnings ratio are currently trending near one standard deviation below average at 0.4 and 20.8 respectively.  

 

The key risk to this rosy picture is the onset of a global recession, which would materially affect Hutchison&rsquo s trade and throughput numbers. Should this take place, the trust&rsquo s earnings and cash flows would be weakened, thus affecting dividend yields.