HPH-Trust – DBSV

Tough times won’t last long

• HK volumes below par YTD, but the worst is over and look forward to better data
  
• Revised down FY13/14F DPU by 8%/6% given lower volume estimates
  
• 1H13 DPU could be around 2UScts, should improve in 2H13 in line with trade flows
  
• Weaker DPU priced in; Maintain BUY with lower TP of US$0.82
  

Can only get better from here. Volume growth at the Trust’s HIT terminals in HK has been below par so far in FY13, with the port workers’ strike in April adding to the woes. HIT volumes could be down more than 10% y-o-y in 2Q13, with the high base in 1H12 – arising from higher transshipment activities between newly formed liner alliance partners – further skewing the comparison. Yantian Port volumes though remain on course for mid-single digit growth as expected, but overall volumes in FY13 could be flattish, despite contribution from newly acquired ACT terminals in HK. But the worst should be over and even though Europe trade remains weak, US volumes show relatively positive signs and upcoming peak season should provide more visibility for investors. This was the key message that HPHT communicated during our Pulse of Asia investor conference in Singapore recently.

Some key indicators looking up. US payrolls data came in better than expected recently, and while unemployment rate didn’t fall, consumer sentiment is improving and US inventory to sales ratio has maintained its upward momentum, giving us some confidence that trade flows in 2H13 will improve.

Worst is over, good time to BUY. In line with lower volume estimates, we moderate our FY13/14 DPU expectations by about 7%/ 6% to 5.3UScts/ 5.9UScts. Our TP is adjusted down to US$0.82. HPHT share price has corrected significantly in line with market sentiment, and we believe it has more than priced in lower DPU expectations. Maintain BUY in light of healthy yield promise amid the uncertain macro environment. A trade recovery by 2H13 could provide an additional cyclical leverage boost to the stock price.