HPH Trust – DBSV

Strong Dec11 throughput

Yantian throughput up 13.5% in Dec11. Buoyed by early restocking activity ahead of the Chinese New Year factory closures – CNY falls two weeks earlier than in 2011 -, December throughput at Yantian Port grew 13.5% YoY. This took 2011 volume up 1.3% to 10.26m TEUs, slightly better than our zero growth assumption. This also supports our hypothesis that a weaker-than-usual 3Q11 peak season would be followed by a stronger-than-usual 4Q11, which volume only fell 6% QoQ vs 15% drop in 4Q10. Hence, 2011 container volume was more evenly spread out as shippers moved to just-in-time shipments. At Hong Kong port, Dec11 volume grew 1.4%, while it grew 2.5% at Kwai Tsing terminals. And for full year 2011, Hong Kong port saw 3% throughput growth while Kwai Tsing terminals registered 2% growth. Hence, we estimate volume at HIT Terminals at Kwai Tsing grew 3-4% YoY in 2011, within our expectation.

Stable outlook. The decent volume growth in 4Q11 should help the Trust to meet its DPU guidance for FY11; we expect 3.0 US cts for 2H11. DBS economist forecasts 2.3% GDP growth for the US and zero growth for Eurozone in 2012. Hence, HPH Trust’s volumes in Hong Kong and Yantian should show modest growth this year. Given strong operating margins and cash flows, we assume the Trust would pay c.6.0 UScts DPU next year, similar to 2011 distribution. Our estimate is about 10% lower than initial guidance as we imputed weaker throughput growth and smaller potential tariff hike.

Attractive yields, maintain BUY. Despite the recent share price rally, HPH Trust is still offering attractive 8.5-9.0% prospective yields. Our US$0.85 TP is based on DCF metric (7.8% WACC) and translates into 7% target yield. HPH Trust is among the top yielding stocks in Singapore (excluding special dividends). With US data picking up and retail inventory-to-sales ratios still at historic lows, restocking activity should pick up and lead to stronger growth as early as 1H12, which could drive up the share price. We might see HPH Trust quoted in S$ on the SGX in the near term, which would broaden its investor base.