Hutchison Port Holdings Trust (HPHT) is “smashing all expectations”, says DBS Group Research analyst Paul Yong, with “huge room” to raise dividends.
“2HFY2020 earnings more than doubled y-o-y to help HPHT post a 57% y-o-y increase in FY2020 net profit to HK$831 million on lower interest costs, greater cost efficiencies and government support,” writes Yong in a Feb 9 note.
In addition, FY2020 distribution per unit (DPU) of 12 HK cents was 33% above DBS’ forecast.
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Yong maintains “buy” on the Trust with a raised target price of 32 US cents from 27 US cents.
HPHT has controlling interests in container port assets located in two of the world's busiest container port cities by throughput: Kwai Tsing in Hong Kong and Yantian Port in Shenzhen, China.
In addition, HPHT has “huge room to raise dividends” beyond FY2021, says Yong. “While HPHT is likely to maintain a DPU of 12 HK cents for FY2021F with a flattish earnings outlook, we believe there is room for DPU to be raised as the Trust’s gearing is now substantially lower than a few years ago. Even if earnings stay flat, this is a higher level of core profitability than in FY2018 when DPU was 17 HK cents, and when the debt repayment programme was already ongoing.”
HPHT has a stable FY2021 outlook ahead. “We expect FY2021F earnings to be flat from FY2020 due to much lower government support offset by some improvement in throughput volumes,” Yong adds.
See: Hutchison Port Holdings Trust to pay higher final distribution of 7.7 HK cents
“That said, the majority of the improvements seen in FY2020 should be sustainable as they stem from greater cost efficiencies as well as lower finance costs, especially with interest rates expected to remain low in FY2021.”
Yong projects throughput volume growth of 3% for Yantian in FY2201F given the still strong export volumes in China expected for the first half of 2021. “However, this could be tempered going into the second half given the high-base effect from 2H2020 while assuming 1% throughput growth for Hong Kong.”
This should help to offset the lower government subsidies and support that were extended to the Trust in 2020 and we project earnings to be flat from FY20-FY21F, he notes. “There could be upside to our forecasts if the Trust is able to push through some rate increases given the current buoyant container freight market.”
As at 10.38am, units in HPHT are trading at 0.5 US cents higher, or 2.08% up, at 24.5 US cents.