HPH Trust – DMG

DPU in-line; near-term volumes could be weak

Results in-line; low capex in 1H12 due to uncertain outlook. HPHT’s 1H12 DPU of HK24.05¢ accounted for 51% of our estimate and 47% of the guidance in its IPO Prospectus (HK51.24¢). 1H12 throughput volumes grew 5% YoY, in-line with our estimate and at the lower end of management’s guidance of 5-7%. Key takeaways from the 2Q12 results conference call: (1) outlook is uncertain due to weak exports to Europe and slow recovery in the US; (2) Management will not be aggressive in spending development capex. HPHT spent HK$370m in 1H12 vs. projection of HK$802m. (3) Management maintained throughput growth guidance of 5-7% in FY12 but if the current situation does not improve, growth will likely hit the lower range. Maintain Neutral with a DCF-derived TP of US$0.78. The stock is trading at FY12-13F yield of 7.8% and 7.3% respectively.

Throughput growth in-line; HIT saw strong growth from transshipment. 2Q12 revenue rose +6.1% YoY, driven by higher overall throughput (+5% YoY) and ASP (1.0-1.5%). HIT achieved strong volume growth in 2Q12 of +8.3% YoY, outpacing the flat growth for all Kwai Tsing terminals, but the growth was mainly driven by higher transshipment movements. HIT’s YTD June volume grew +8.9% YoY. Yantian’s volume rose +4.0% YoY in 2Q12 and +1.9% YoY YTD June.

Margins fell as ports handled more transshipment cargoes. 2Q12 ASP at HIT was weaker (~0.5%) while ASP at Yantian saw a positive growth of ~2%. Overall EBITDA margin declined to 57% (2Q11: 60%) due to higher mix of transshipment cargoes at HIT. Cost of services per unit TEU was up 1-2%, in-line with CPI.

Weak near-term outlook for container volumes. Management painted a soft outlook due to the Euro-zone debt crisis and slow economic recovery in the US. Throughput numbers already showed weakness in June: COSCO-HIT -1.9% YoY, Kwai Tsing terminals -1.7% YoY and Yantian +1.1% YoY. We maintain our FY12F volume growth of +6% YoY for HIT and +3% YoY for Yantian.