HPH-Trust – DBSV

Positive surprise from Yantian

Second consecutive month of double-digit growth at Yantian Port. Yantian Port’s September throughput grew by 16.7% y-o-y to 1.06m TEUs for the month. This follows healthy growth of 11.7% y-o-y in August. While part of the growth in August was weather-related, the higher growth in September is largely a function of a lower base in September 2011, a likely return to more normal peak season patterns in trade, and continued market share gains.

Yantian Port volumes continued to outstrip growth in Western Shenzhen ports – which grew at c.8% for the month – as we believe larger container vessels utilised on the US and European main lanes prefer to call at Yantian Port in Eastern Shenzhen given its wider access channels. For 3Q12, Yantian Port volumes are up 10%. YTD in 2012, Yantian Port’s throughput growth now stands at 4.8% y-oy, compared to only 2% in 1H12.

Hong Kong numbers decent. Over in HK, throughput growth turned positive at Kwai Tsing terminals for the first time in 4 months, again helped by a low base effect. Volume handled at Kwai Tsing terminals grew 7.3% y-o-y to 1.46m TEUs in September. YTD, Kwai Tsing terminal throughput is up 1.5%. We estimate volumes at HPH Trust’s HIT terminals at Kwai Tsing could be up at a faster clip of 5-6% YTD, as other terminal operators are losing ground. In 1H12, HIT had registered 8% growth in volumes, compared to 2.2% growth overall at Kwai Tsing. COSCO-HIT volumes registered growth of 1.4% y-o-y in September, and are up 5.1% y-o-y YTD.

Re-rating in progress. Overall growth numbers are in line or slightly higher than our 2-4% full year growth forecast for Yantian and HIT. No changes to our DPU estimates. We forecast 6.6UScts payout for FY12, including interim DPU of 3.1UScts. This implies a higher DPU of 3.5UScts for 2H12, supported by seasonally higher volumes, and some deferral of development capex plans. Better growth numbers at Yantian may lead to lower need for capex deferral to meet DPU guidance. Maintain BUY, TP US$0.85. Despite some recent re-rating, yield remains attractive at 8.25%. We expect further re-rating as market increasingly appreciates the steady and sustainable dividend generating capability of the Trust.