HPH Trust – DMG

DPU above expectations; raise TP

Impressive cost control. HPH Trust (HPHT)’s FY11 DPU of 37.70HK¢ was 11% ahead of our forecast (33.80HK¢) but slightly below street estimate of 39.30HK¢. The better-than-expected DPU was attributed to HPHT’s impressive cost control and low interest rate. Following the results, we raise FY12F DPU by 9% due to lower interest rate on its debts and higher 2012 throughput volume growth of 6% and 3% for HIT and Yantian respectively. We are forecasting 47.22HK¢ (6.07US¢) dividend in FY12, which implies a yield of 8.1% at its last close. We upgrade our DCF-derived TP to US$0.83, based on 8% WACC and 2% long-term growth rate (for period beyond 2015). Maintain BUY.

Extension of peak season lifted 4Q11’s volume. HIT’s 4Q11 volume showed strong growth of 10.6% YoY while Yantian registered 5.5% YoY in 4Q11. For the period between 16 Mar to 31 Dec 2011, HIT and Yantian grew by 5.5% and 0.6% respectively. HIT’s growth was ahead of its peers in Hong Kong. Yantian’s ASP was positive, up 4-5% in 2011 vs. 1% drop for HIT’s ASP (on our estimates).

Maintaining FY12 DPU guidance of 51.24HK¢. In the results teleconference, management set a high target for 2012 by maintaining its IPO DPU forecast of 51.24HK¢, close to a 11% YoY increase (seasonally adjusted). This will be driven by 5-7% throughput growth and 1-2% ASP growth. We think the target is slightly ambitious given its ports could see 5-6% increase in cost per TEU from inflationary pressure. Our DPU target is 8% below management’s guidance.

Other developments: HPH has refinanced the HKD$2.8b loan for Yantian and the next debt maturity is in 2014. The company may look to take advantage of the low interest rates by making an early move to refinance some of its debts maturing in 2014 from bonds or other instruments.