SINGAPORE (July 24): Hutchison Port Holdings Trust (HPHT) is a proxy to trade tensions so investors should expect high volatility from the stock heading into the US mid-term elections.
The longer-term ramifications of a trade war are also certainly unfavourable to HPHT.
In the worst case scenario, it may even force US retailers and distributors to switch to cost-competitive alternatives from other countries thereby reducing its reliance on China manufacturers.
However, southern China is a manufacturing hub for many lower-cost items such as toys or clothes for which higher costs may be easily be passed to US consumers.
Nonetheless, OCBC Investment Research believes the stock is oversold. OCBC currently places a 70% probability on HPHT’s Yantian International Container Terminals (YICT) throughput falling 10% in 2019, an assumption the research house deems to be sufficiently conservative given that YICT’s outbound cargoes to the US only account for around 30-40% of its total throughput.
“After adjustments, our fair value drops from US$0.37 to US$0.36 which is 31% above July 23 close. HPHT is currently trading at a 9% FY18F yield. Maintain “buy”,” says OCBC Research Deborah Ong in a Tuesday report.
In its last report on HPHT dated July 17, OCBC expected a relatively weak 2Q18 set of results and encouraged investors to wait before scooping up units.
HPHT’s 2Q results were indeed weak and largely within expectations, says Ong. Notably, management has lowered full-year DPU guidance from 20-23 HK cents to 17-20 HK cents. Given the lowered guidance, OCBC expects share price weakness following last night’s results.
To recap, 1H18 throughput of HPHT’s ports is 1% below last year’s, with YICT’s up 2% y-o-y and Kwai Tsing’s down 3% y-o-y. In 2Q18, outbound cargoes to the US continued to grow by 3%, which seems to suggest little impact from the US-China trade spat.
See: HPH Trust reports interim DPU of 8.52 HK cents on lower total throughput
On the other hand, outbound cargoes to the EU declined by 3%, mainly due to a strong base in 2Q17.
“We maintain our full-year throughput growth assumption of -3% for Kwai Tsing while we reduce that for Yantian from +4% to +1%. 2Q ASPs increased in both Hong Kong and Shenzhen, and we expect ASPs to remain largely stable for the rest of the year,” says Ong.
As at 10.34am, units in HPHT are trading 0.5 cent lower at 27 US cents.
