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Will a Biden victory be a re-rating catalyst for Hutchison Port Holdings Trust?

Ng Qi Siang
Ng Qi Siang 11/18/2020 11:10 AM GMT+08  • 2 min read
Will a Biden victory be a re-rating catalyst for Hutchison Port Holdings Trust?
Throughput volumes are rebounding strongly after a difficult 1H2020.
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As US media outlets call a victory for Democratic candidate Joe Biden in this year’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’s busiest container port cities by throughput - Kwai Tsing, Hong Kong and Yantian Port, Shenzhen, China.

“We have raised our FY2020 and FY2021 earnings [forecasts] by 10.3% and 3.4% respectively after factoring in higher throughput volumes for 2H20,” Yong writes in a broker’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.

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In October alone, Yantian’s throughput volume jumped 27% y-o-y to 1.148 million TEUs, with volumes soaring 16.1% from July to October. Kwai Tsing’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 “buy” 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’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.

See: HPH Trust reports 3% fall in 3Q earnings to $40.4 mil on higher taxes

Current valuations of the share are also relatively attractive. Hutchison’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’s trade and throughput numbers. Should this take place, the trust’s earnings and cash flows would be weakened, thus affecting dividend yields.

As of 11am, Hutchison is trading 9.21% higher at US$0.17. It’s P/E ratio now stands at 14.25 and dividend yield comes in at 15.07%.

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