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PSA purchase lifts HPH Trust as share price hits all-time low

Chan Chao Peh
Chan Chao Peh • 4 min read
PSA purchase lifts HPH Trust as share price hits all-time low
SINGAPORE (June 18): Singapore’s state-owned port operator, PSA International, has acquired more than 53 million shares in Hutchison Port Holdings Trust from the open market for nearly US$15.9 million ($21.2 million). The purchase was made on June 6, at
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SINGAPORE (June 18): Singapore’s state-owned port operator, PSA International, has acquired more than 53 million shares in Hutchison Port Holdings Trust from the open market for nearly US$15.9 million ($21.2 million). The purchase was made on June 6, at an average price of 29.7 US cents.

With this purchase, PSA, which has been the second-largest unitholder of HPHT since it went public, increased its stake in the trust to nearly 984 million shares, or 11.29%. Prior to this, PSA, via an entity called Port Capital, owned nearly 930.4 million shares, or 10.68% of the trust.

HPHT’s largest shareholder is still Hutchison Port Group Holdings, part of Hong Kong tycoon Li Ka Shing’s sprawling business empire, which owns just over 2.4 billion shares, or 27.62% of the trust.

PSA’s purchase comes at a time when HPHT is under selling pressure. Over the one-week period between May 24 and June 1, HPHT’s shares fell steadily from 33 US cents to close at 27 US cents, after hitting an intraday and all-time low of 26.5 US cents. With the purchase by PSA, HPHT’s share price recovered to close at 30 US cents on June 12, but it is still down 27.7% year to date.

While HPHT’s earnings and distribution have been on a steady decline, analysts have cited several reasons that might have caused the recent drop. OCBC analysts Deborah Ong and Eugene Chua say some of these worries might have caused investors to overreact. In a June 7 note, they maintain their “buy” call and price target of 37.5 US cents on the stock.

First, Chinese authorities have slashed reference tariff rates for the Shenzhen ports to RMB980 ($204) twenty-foot equivalent unit from RMB1,400. As HPHT’s existing rates are already “significantly below” the new, lower rate, this new policy should not have a big impact on HPHT, they note.

Next, looming trade tensions originating from the US have also weighed the stock down. A basket of Chinese goods worth US$50 billion in trade value has been threatened with punitive tariffs. Ong and Chua, citing the HPHT management’s own estimates, note that components of this basket make up between 1% and 2% of the throughput of affected terminals. “Even if all of the throughput related to these goods were to cease completely as a result of the tariffs that may or may not be implemented, we estimate that the impact on HPHT is less than 2%,” they say.

The stock also suffered from a “demotion”. It was removed from the MSCI Singapore Index and included in the MSCI Singapore Small Cap Index on June 1. “As far as we know, there were no news/updates suggesting a change in company fundamentals during the period,” the analysts say.

OCBC estimates HPHT will pay out 21 HK cents for the whole of FY2018, which will translate into a yield of 8.8%. This payout level is a slight improvement from 20.6 HK cents for FY2017, which was a steep 32.7% drop from FY2016’s 30.6 HK cents. The cut in distribution was because of a deliberate shift to pay down more debt in the face of rising interest rates. Some HK$1 billion ($170 million), or 11.5 HK cents a unit, has been set aside for the repayment. For FY2019, OCBC expects the payout to improve to 22 HK cents, which will give a yield of 9.2%. “Overall, we still see significant value at current prices,” its analysts say.

HPHT was listed to great fanfare in March 2011 because of its connection to Li. It was one of the largest IPOs on the Singapore Exchange ever, raising US$5.5 billion. However, the listing did not get off to a good start. On Friday, March 11, Japan was hit by the great Tohoku Earthquake. That spooked investors, and HPHT’s offer, which closed the following Monday morning, March 14, suffered from dampened demand. While the placement tranche was 2.9 times subscribed, the public tranche was barely twice covered.

HPHT’s share price never managed to rise above its IPO price of US$1.01 and subsequent attempts to stoke retail investors’ interest did not help. For example, in early 2012, HPHT became the first entity to introduce dual-currency trading, so as to remove the currency risks that some investors shun. The trust was also hit by issues such as a slowdown in trade volume growth and strikes by workers of the terminals.

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