HPH-Trust – DBSV

Update: September 2011 operating statistics

Another month of disappointing data at Yantian. Yantian Port’s throughput volume fell 4.6% y-o-y in Sep 2011 to 911,400 TEUs, the second consecutive month of negative y-o-y growth. Volume was also down 9% m-o-m, which is not unusual seasonally, but we were expecting a delayed peak season this year, which has evidently not materialised. YTD in 2011, Yantian Port’s throughput is flat y-o-y, compared to initial management guidance of 7-8% growth, and our current estimate of 2% growth. Slower exports to US and Europe, which account for close to 70% of Yantian volumes, have been the key drag.

Data from HK port caused no cheer either, as throughput growth at Kwai Tsing terminals declined by 1.7% for Sep 2011, and YTD growth now stands at 1.8%. However, we believe HPT should still be on track to achieve our volume growth assumption of 4% in FY11. Volume at JV terminal COSCO-HIT registered 4.5% throughput growth in Aug (YTD growth of 6.7%).

Discount the peak season this year. Given the data from ports and container liners so far in 3Q11, the peak season has been much worse than expected. Trade activity picked up somewhat in August but again moderated in September, as retailers remained cautious in building up inventory ahead of the holiday season, in light of the prevailing economic uncertainties. The traditional lull period in 4Q will likely be better than usual though, as retailers shift to justin-time shipments. But that again might benefit air cargo more than containers.

Maintain BUY, immaterial change in DPU estimates. Following this set of disappointing data, we would likely lower our FY11 volume growth projections at Yantian Port to 0% from 2% earlier. Lack of pricing competition and gradual shift to RMB pricing at Yantian should help support tariffs, though. Our DPU projections for FY11/12 are thus, likely to be lowered by another 2% and 1%, respectively to 5.5UScts (annualised) and 5.9UScts. This still implies a yield of 8.9-9.6% at current price, which is very attractive. We maintain our BUY call on the stock, but will finalise the numbers following the 3Q11 results and further discussions with management. Our DCF-based TP remains at US$0.95.