HPH Trust – DBSV

Volume growth should pick up

• Results in line; Yantian Port volumes disappointing in 1Q12, but offset by better than expected HIT volumes

• FY12F dividend guidance stays at 6.6UScts; cash flows to be supported by deferring capex plans if needed

• Maintain BUY for yield in excess of 8.5%

• Catalysts expected from better y-o-y throughput data

Highlights

HIT gains market share in HK port. Overall volume growth for HPH Trust’s portfolio came in at about 5% y-o-y, largely thanks to 9.4% throughput growth at HIT, driven by higher transhipment and Intra-Asia volumes. Container throughput at Yantian Port was down 0.4% y-o-y, as export volumes to US and especially Europe remained weak. ASP grew by about 2-3% at Yantian Port, and declined slightly at HIT in 1Q12, largely due to the change in volume mix towards transhipment cargoes.

Cash generation not far from projections. Though revenues fell 6% short of management projections, savings at the operating level, lower interest expenses and taxes, and the larger contribution from 100%-owned HIT meant that net profits attributable to unitholders were largely in line with estimates. This has been the trend in previous quarters as well and the ~7% y-o-y growth in revenues and likely similar growth in EBITDA implies that the Trust is on track to deliver on its DPU guidance for FY12.

Our View

Expect better growth numbers hereon. We believe a somewhat more sustainable y-o-y recovery in volumes could be noticeable from April 2012 onwards, as volumes had started to flatten out during that period in 2011. Management indicated that volumes have started to pick up in April and May, and export bookings to the US are looking better, though the European market still remains weak. We estimate that volumes at HIT and Yantian Ports should show modest low, single-digit growth of 2-4% this year, though management still remains optimistic about the possibility of 5-7% growth.

Recommendation

DPUs secure, maintain BUY with TP of US$0.85. We expect the Trust to meet its DPU guidance of 6.6UScts for FY12, as it can divert some cash reserves earmarked for growth capex if volume growth is not strong enough in the near term. In 1Q12, the capex outlay was indeed 51% lower than projected.

Separately, HPH Trust announced the succession plan for its CEO, Ms. Hai Chi Yuet, who will be retiring in Nov-2012. Mr. Gerry Lui Fai Yim has been named the CEO designate. Mr. Yim had served with the HPH Group between 2003-09 and last served as the CEO of HK-listed Hysan Development Company. We do not expect any change in strategy or DPU policy.