HPH-Trust – DBSV

Sustainable yield story

• Container throughput growth at Trust’s ports running in line with expectations so far in 2012

• We do not foresee another global credit crunch scenario, nor any resultant sharp negative trade growth as implied by current share price levels

• Maintain BUY for >9% yield; TP US$0.85

Asia-US trades help prop up Yantian volumes YTD in 2012. Continuing with the trend seen in April, Yantian Port operating data for May was again encouraging, with volumes growing 5.1% y-o-y. YTD volume growth at Yantian Port now stands at 2.1%, and is trending in line with our estimates even before the traditional peak season has started. We think export bookings to the US are still holding up, though the European market remains weak and could weaken further.

Slow growth in volumes a reality but a repeat of 2009 – negative trade volume growth – is unlikely. According to our economists, the prospect of a Greek exit from the Eurozone does not have to be another “Lehman moment” for Europe or the rest of the world. The key driver for sharp decline in container trades in 2009 was the credit crunch, which rendered trade financing very difficult. The risk of a credit crunch remains lower this time than in 2008-09, as liquidity is abundant in Asia and markets have had 2 years to think about the current situation and prepare for it. Also, in 2008, the crisis was about dollars, this time it’s mainly the euro, which is not as important to Asia’s trade financing as the dollar.

FY12-13 DPU should still be sustainable even in bear-case scenarios. Under our base case scenario, we expect the Trust to meet its DPU guidance of 6.6UScts for FY12, after taking into account some degree of capex deferral. We also devise 2 sets of pessimistic scenarios, as shown on inside pages, but according to our calculations, unless tariff rates are affected materially, DPU for FY12/13 will still be above the (annualised) FY11 DPU of 6.0UScts. But despite these largely secure cash flows, the Trust is trading in excess of 9% yield, which makes it one of our top large cap high yield picks in Singapore.