Sunday, December 22, 2013

Company in focus - Hutchison Port Holdings Trust

Hutchison Port Holdings Trust ("HPH Trust") is the first publicly traded container port business trust. HPH trust is a subsidiary of Hutchison Whampoa Limited. This company is owned by Hong Kong's billionaire Li Ka Shing. The IPO on SGX was deemed one of the largest in Singapore. Since trading on SGX, the stock has fallen by quite a bit and this has caught my attention. It has fallen from a high of 0.86 to the current price of 0.64. This is already a 25% drop.


HPH Trust's portfolio consists of controlling interests in world class deep-water container port assets, namely Hongkong International Terminals ("HIT") and Asia Container Terminals ("ACT") in Kwai Tsing Port, Hong Kong; and Yantian International Container Terminals ("YICT") in Shenzhen Port, PRC. HPH Trust also has 50% interest in COSCO-HIT Terminals ("COSCO-HIT") in Kwai Tsing Port. The assets also comprise certain port ancillary services and river ports complementary to the deep-water container ports operated by HPH Trust.

It's Net income and cash flow have been affected by the slow economic growth worldwide. Port activities have been slow as exports decrease. However, i expect there to be a turnaround as US, Europe and Japan's economy gradually recovers. The good thing about this trust is that it has a very strong free cash flow that is still resilient during the economic downturn.


PE for this trust is at 21x. PB ratio is at 0.7x. Even though PE ratio is on the high side, it is expected for a company with high Free cash flow. The attractive part for this stock is the low PB ratio. This means if we buy at the current price, we're buying at less than what the company is actually worth in terms of its net assets. This is good news.

In terms of risk, the company has a debt to equity ratio of about 35%. This is the risk in exchange of the high dividends and high free cash flow the company has. At current price of 0.64, the trust is having a yield of about 9%. The trust also has a 100% income distribution policy. This explains the high dividend yield. If the distribution policy were to change in the future, this would affect the dividends greatly.

I'm believing that profits should increase for this trust as the economy gradually recovers. I'm vested in this counter and will be prepared to add more if it stabilises at the current price.

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4 comments:

  1. Yields are getting very interesting for HPH.

    I do have some concerns over weaker USD forecast, higher operating costs, possible slowdown in china?

    A yield of more than 10% would be a safer safety margin in my opinion.

    ReplyDelete
  2. Hi Solace,

    HPH is very generous in dividends till now. I hope this will continue in the future. I think USD should become stronger since QE is gradually reducing? Higher operating costs I will agree and a slowdown in china is possible.

    If it drops just a little more we would be seeing 10% yield soon.

    ReplyDelete
  3. hi saw that there are two HPH Trust USD and HPH Trust SGD, what's the difference between both of them?

    ReplyDelete
    Replies
    1. Hi James,

      One is traded in USD and the other is traded in SGD. If you buy the USD stock, you'll be paying in US dollars.

      Delete