HPH Trust – AmFraser

Poised to leverage on a cyclical upturn in global trade

In its latest quarterly results, Hutchison Port Holdings Trust (HPHT) continued to showcase its resilience against the backdrop of a softened macro environment. While HPHT’s recent labour dispute at Hong Kong International Terminal (HIT) will put a slight dampener on its bottom‐line, we believe this will be negated by the revenue contribution from its recent acquisition of Asia Container Terminals (ACT). We reiterate that HPHT’s current valuations remain hugely enticing given the sustainability of its 7+% yield and the scope for recovery in global trade conditions. Maintain BUY with a FV of US$0.955.

Demonstrating resilience. HPHT recorded a 1.1% y‐o‐y growth in its overall revenue for Q113, and this forms 21.3% of our forecast FY13 revenue. This came on the back of its flatish throughput volume growth, which showcases its resilience amid weaker transhipment growth in Hong Kong and uninspiring trade conditions in the EU.

Bottom‐line weighed down by acquisition‐related costs. While HPHT’s net profit declined by 6.5% in Q113, we note that this

was largely a result of additional expenses incurred in relation to its recent acquisition of ACT on 7 March 2013. Stripping out the performance fee and acquisition‐related costs of HKD55.7mil, HPHT’s overall net profit would have increased by 1.6% y‐o‐y. Moreover, we observed that HPHT’s operating margins (excluding the impact of the acquisition‐related expenses and performance fee) remained strong at 31.2%, comfortably outperforming its Chinese port peers.

Strike at HIT likely to end soon. Around 450 people, mainly crane operators and stevedores that were employed by external contractors, have staged a strike at HIT on 28 March to demand a 23% pay increase. The strike escalated in the following days and HIT, a subsidiary of HPHT, has sought a court injunction prohibiting workers from demonstrating in their terminal premises on 1 April. This allowed HPHT to quickly resume normal operations and HIT is currently running at 86‐90% of normal operations. HPHT expects to run at 100% in 6‐8 weeks’ time.

Labour dispute has immaterial financial impact. As the strike only began on 28 March, the labour dispute has had a negligible impact on HPHT’s Q1 results. While the full impact of the strike will be borne out in its Q2 results, we believe the financial impact as a result of the labour dispute is likely to be insignificant. According to HPHT, its daily revenue loss has narrowed to HKD2.4mil (0.02% of FY12 revenue) on 5 April from HKD5mil (0.04%) during the initial days of the strike. We currently estimate the overall earnings loss from the strike to make up approx. 1.6% of our FY13 earnings projection.