HPH Trust – DBSV

Attractive mix of yield & growth

• Dominant container port player in HK and Shenzhen

• Stable 60% EBITDA margin business to support 100% payout policy, with room to grow

• Currently trading at attractive annualized FY11 yield of 6.3%; 10% DPU CAGR expected over FY11-13

• Initiate with BUY, US$1.15 TP based on DCF (7.2% WACC) with FY12 implied yield valuation of 5.8%

Top container port operator in HK and Shenzhen. Hutchison Port Holdings Trust (HPHT) is the largest container port player in HK and Shenzhen, handling 21.2m TEUs in 2010 or 54% of the entire volume handled at deep-water ports in this area. It is sponsored by Hutchison Port Holdings Limited, the world’s top container port operator by gross throughput.

Predictable and growing cash flows. As the market leader in an oligopolistic environment, and operating on a large scale in one of the China’s most important trade hubs, HPHT’s operations are highly efficient and profitable, with a stable and predictable cash flow stream. HPHT is also expanding its capacity in Yantian Port in East Shenzhen to capture the projected continued growth in trade flows into and out of Southern China, a vital economic region of the country. These factors should underpin the Trust’s ability to generate EBITDA margins of close to 60% and grow distributions by about 10% CAGR over FY11-13.

Attractively trading at FY11F annualised yield of 6.3%, growing to 7.1% in FY12F, compared to S-REITs, which are trading at 6.0-6.3% FY11/12F average yield. Our target price of US$1.15 is based on a 3-stage DCF model with a WACC of 7.2% and terminal growth of 1%. Key concerns include HPHT’s vulnerability to global trade cycles and various foreign currency fluctuation risks for HPHT and its unitholders.