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Reuters: HPHT.SI
30 May 2011
Price Relative
US$ 1 .1 0 1 .0 5 169 1 .0 0 0 .9 5 0 .9 0 69 0 .8 5 0 .8 0 M a r-11 19 11 9 R e la tiv e In d e x 219
H u tc h is o n P o r t H o ld in g s T r u s t ( L H S )
R e la tiv e S T I IN D E X ( R H S )
Revenue EBITDA Pre-tax Profit Net Profit Net Pft (Pre Ex.) EPS (US cts.) EPS Pre Ex. (US cts.) EPS Gth Pre Ex (%) Diluted EPS (US cts.) Net DPS (US cts.) BV Per Share (US cts.) PE (X) PE Pre Ex. (X) P/Cash Flow (X) EV/EBITDA (X) Net Div Yield (%) P/Book Value (X) Net Debt/Equity (X) ROAE (%) Earnings Rev (%): Consensus DPS (US cts.): Other Broker Recs:
11,408 7,013 3,592 2,131 2,131 3.1 3.1 N/A 3.1 0.0 101.0 29.1 29.1 13.1 15.1 0.0 0.9 0.3 3.1
12,491 7,497 4,061 2,293 2,293 3.4 3.4 8 3.4 6.0 101.4 27.0 27.0 12.3 14.0 6.5 0.9 0.3 3.3 5.1 B: 7
13,661 8,343 4,765 2,685 2,685 4.0 4.0 17 4.0 6.6 99.1 23.1 23.1 11.4 12.6 7.3 0.9 0.3 4.0 6.6 S: 5
14,837 9,198 5,625 3,149 3,149 4.6 4.6 17 4.6 7.2 96.8 19.7 19.7 10.5 11.5 7.9 0.9 0.3 4.7 6.9 H: 1
ICB Industry : Financials ICB Sector: Equity Investment Instruments Principal Business: HPH Trust owns deepwater container terminal assets in the Pearl River Delta region of China
www.dbsvickers.com Refer to important disclosures at the end of this report ed: JS / sa: YM
Year to date throughput estimates largely in line Based on reported numbers from COSCO-Pacific (HPH Trust does not disclose monthly operating statistics), throughput volumes at HPHTs COSCO-HIT terminals and Yantian Port rose by 3.7% y-o-y and 8.8% y-o-y respectively in the month of April. For the first four months of 2011, combined throughput at COSCO-HIT has increased by 7.9% and for Yantian Port, by 5.7%. Yantians throughput growth rate YTD in 2011 has been faster than the rest of the Shenzhen ports, which is in line with our assumption that Yantian will increase its market share in Shenzhen, going forward. Throughput Volumes at COSCO-HIT and Yantian
COSCOHIT 141,100 106,400 132,200 144,300 524,000 % Chg y-o-y 11.0% 5.6% 11.7% 3.7% 7.9% Yantian Port 934,500 569,400 773,500 776,100 3,053,500 % Chg y-o-y 17.2% -12.1% 5.8% 8.8% 5.7%
2010
2011
Meanwhile, throughput volumes at Kwai-Tsing Terminals, which includes HIT, COSCO-HIT and MTL (Modern Terminals) grew by 6.7% y-o-y in April and by 4.5% y-o-y for the first four months of 2011. This is higher than the overall growth rate in HK Port (which includes river ports and mid-ocean terminals). Taking into account the fact that competitor Modern Terminals lost some volumes when Maersk Lines shifted some of their handling requirements to Nansha Port, Guangzhou, we believe HITs throughput volumes would have grown at a faster pace than Kwai-Tsing Terminals as a whole at around 6%-8% for the first four months of 2011. Throughput Volumes at HK Port and Kwai-Tsing Terminals
Hong Kong Port 2,097,000 1,529,000 1,968,000 2,023,000 7,617,000 % Chg YoY 5.4% -1.5% 3.1% 3.6% 2.9% Kwai-Tsing Terminals 1,514,000 1,157,000 1,418,000 1,483,000 5,572,000 % Chg YoY 6.0% -2.3% 6.5% 6.7% 4.5%
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Dec
Jan
Feb
Oct
Apr
Jun
Jul
Forecasts remain unchanged Based on 7% throughput growth in Hong Kong and 8% throughput growth in Yantian in FY11, and 1% - 2.5% improvement in revenue per TEU, we project HPHTs (annualised proforma) EBITDA to grow by 7.4% in FY11. Key Assumptions for FY11
Throughput growth Change in Rev/ TEU HIT 7.0% 1.2% Yantian Port 8.0% 2.5%
grow at an average CAGR of 2.7%, given that the assets are largely mature. Has underperfomed the index as well as industry peers Since listing, the stock is down 10%, compared to a 7% rise in the STI index and a 7% rise in the share price of other port stocks in the region like China Merchants and COSCO Pacific. While it is partly attributable to the fact that the IPO issue was priced before the Japan earthquake crisis, we believe that the extent of underperformance is not warranted, given that operations seem to be on track with our projections and thus, we feel this presents a good buying opportunity. Relative share price performance of HPHT vs. peers and index
140 HPHT CMHI CP SIPG STI
Interim dividend to be declared before mid August HPHTs full year (annualised proforma) distributable income is estimated at HK$6,179.5m, translating to a DPU of 5.95UScts for FY11. However, as the income only accrues to its unitholders from March 17th (the date of its IPO) onwards, actual DPU for FY11 is projected to be c. 4.85UScts (5.95UScts x 0.815x), of which we expect around 1.8UScts will be declared for the first half of 2011 to shareholders. HPH Trust is expected to announce results for the period ending June 2011, sometime before mid August. HPH Trust trading at a wide discount to other yield plays In our initiation report, we had indicated that comparisons to entities with high dividend payouts such as REITs and other high yield plays can be used as a relative benchmark for HPH Trusts valuation. However, at current prices, we feel the Trust is unjustifiably undervalued at 6.6-7.3% yield for FY11/12, compared to the overall average of ~6% yield for office and retail REITs in Singapore. Compared to the larger market cap REITs with high quality assets like CMT, CCT and K-REIT which are trading at between 4.6-5.6% on FY11/12 the valuation gap is even wider. Compared to the high yield stocks in Singapore, which include telecom, infrastructure, MRO, media and land transport companies, we come to the same conclusion as above. While promising much higher DPU growth prospects We project HPH Trust could grow its distributions by about 10% over the next 2 years. This compares very favourably with the expected DPU growth for the REITs and other yield plays, as evident in the table below. While the office REIT DPU is expected to grow at 1.5% CAGR over FY10-12, retail/mixed REIT DPU is expected to grow at an average 2.9% CAGR and that for high yield plays is expected to
120
100
80 17-Mar 24-Mar 31-Mar 12-May 19-May 26-May 14-Apr 21-Apr 28-Apr 5-May 7-Apr
While we feel that comparing with industry peers on a range of earnings multiple based valuations is less relevant, given the difference in corporate structure, usage of free cash flow and payout ratios between HPH Trust and other listed container port companies, we have included other port players in the list below for comparison. It is evident that EV/EBITDA multiple premium between HPH Trust and closest peer CMHI has shrunk and is almost at par, while we look for at least a 10% premium given the higher EBITDA margins generated by HPH Trust and the better visibility and transparency of cash flows accruing to shareholders. Maintain BUY and TP of US$1.15. (DCF-based). Given that the Trust seems to be well on its way to met our projections in FY11/12F, current FY11/12 yields look very attractive at 6.6-7.3%, and coupled with decent growth prospects of ~10%, we maintain our BUY call on the stock with a TP of US$1.15. This implies total return potential in excess of 30% at current prices. Our target price of US$1.15 is based on a 3stage DCF model with a WACC of 7.2% and terminal growth of 1%.
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Segmental Breakdown
FY Dec 2010A 2011F 2012F 2013F
5,434 5,905 69
5,884 6,537 70
6,359 7,232 70
Total
11,408
12,491
13,661
14,837
Margins Trend 11,408 (3,692) 7,717 (3,642) 4,074 0 167 (649) 0 3,592 (253) (1,208) 0 2,131 2,131 7,013 N/A N/A N/A N/A 67.6 35.7 18.7 3.1 1.5 2.9 0.0 6.3 12,491 (4,124) 8,367 (3,876) 4,491 0 126 (555) 0 4,061 (392) (1,376) 0 2,293 2,293 7,497 9.5 6.9 10.2 7.6 67.0 36.0 18.4 3.3 1.6 3.1 176.0 8.1 13,661 (4,444) 9,217 (3,914) 5,302 0 139 (677) 0 4,765 (570) (1,510) 0 2,685 2,685 8,343 9.4 11.3 18.1 17.1 67.5 38.8 19.7 4.0 1.9 3.6 167.4 7.8 14,837 (4,755) 10,082 (3,931) 6,152 0 153 (680) 0 5,625 (780) (1,696) 0 3,149 3,149 9,198 8.6 10.2 16.0 17.3 68.0 41.5 21.2 4.7 2.3 4.1 154.8 9.1
37.0% 32.0% 27.0% 22.0% 17.0% 2010A
Operating Margin %
Revenue Cost of Goods Sold Gross Profit Other Opng (Exp)/Inc Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc Exceptional Gain/(Loss) Pre-tax Profit Tax Minority Interest Preference Dividend Net Profit Net Profit before Except. EBITDA Growth Revenue Gth (%) EBITDA Gth (%) Opg Profit Gth (%) Net Profit Gth (%) Margins & Ratio Gross Margins (%) Opg Profit Margin (%) Net Profit Margin (%) ROAE (%) ROA (%) ROCE (%) Div Payout Ratio (%) Net Interest Cover (x)
2011F
2012F
Tax rates to increase as tax concessions are removed in a phased manner at Yantian Port
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Asset Breakdown 78,356 2,950 50,512 4,571 141 2,576 3 139,109 2,775 8,488 26,126 13,659 68,442 19,621 139,109 (5,768) (24,329) 82.4 3,264.8 55.9 0.1 0.6 0.6 0.3 0.4 216.5 NA 77,693 2,902 50,281 5,641 169 2,875 379 139,940 2,775 8,739 26,126 13,659 68,717 19,924 139,940 (5,316) (23,259) 79.6 2,451.7 45.6 0.1 0.8 0.7 0.3 0.3 6.9 NA 76,195 2,853 50,049 4,677 177 2,957 755 137,664 2,775 8,789 26,126 13,659 67,137 19,179 137,664 (4,900) (24,223) 77.9 2,010.5 40.9 0.1 0.7 0.7 0.3 0.4 4.1 NA 74,634 2,805 49,818 3,807 195 3,171 1,132 135,561 2,775 8,994 26,126 13,659 65,601 18,407 135,561 (4,496) (25,093) 75.4 1,690.9 36.5 0.1 0.7 0.6 0.3 0.4 3.8 NA
Net Fixed Assets Invts in Associates & JVs Other LT Assets Cash & ST Invts Inventory Debtors Other Current Assets Total Assets ST Debt Other Current Liab LT Debt Other LT Liabilities Shareholders Equity Minority Interests Total Cap. & Liab. Non-Cash Wkg. Capital Net Cash/(Debt) Debtors Turn (avg days) Creditors Turn (avg days) Inventory Turn (avg days) Asset Turnover (x) Current Ratio (x) Quick Ratio (x) Net Debt/Equity (X) Net Debt/Equity ex MI (X) Capex to Debt (%) Z-Score (X)
Capital Expenditure
70000
Pre-Tax Profit Dep. & Amort. Tax Paid Assoc. & JV Inc/(loss) Chg in Wkg.Cap. Other Operating CF Net Operating CF Capital Exp.(net) Other Invts.(net) Invts in Assoc. & JV Div from Assoc & JV Other Investing CF Net Investing CF Div Paid Chg in Gross Debt Capital Issues Other Financing CF Net Financing CF Currency Adjustments Chg in Cash Opg CFPS (HK cts) Free CFPS (HK cts)
3,592 2,774 (508) (167) (919) 993 5,767 (62,574) 936 0 197 229 (61,212) (909) 17,991 42,536 401 60,019 0 4,573 76.8 (652.3)
4,061 2,884 (768) (126) (76) 0 5,976 (1,987) 0 0 174 0 (1,813) (2,018) 0 0 0 (2,018) 0 2,145 69.5 45.8
4,765 2,905 (946) (139) (39) 0 6,546 (1,172) 0 0 188 0 (984) (4,265) 0 0 0 (4,265) 0 1,296 75.6 61.7
5,625 2,898 (1,157) (153) (27) 0 7,186 (1,100) 0 0 202 0 (898) (4,685) 0 0 0 (4,685) 0 1,603 82.8 69.9
2012F
Pre-funded at IPO
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DBSV recommendations are based an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return i.e. > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)
GENERAL DISCLOSURE/DISCLAIMER This report is published by DBS Vickers Research (Singapore) Pte Ltd ("DBSVR"), a direct wholly-owned subsidiary of DBS Vickers Securities (Singapore) Pte Ltd ("DBSVS") and an indirect wholly-owned subsidiary of DBS Vickers Securities Holdings Pte Ltd ("DBSVH"). This report is intended for clients of DBSV Group only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBSVR. The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBSVR, DBSVS, and/or DBSVH) do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. DBSVR accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. DBSVH is a wholly-owned subsidiary of DBS Bank Ltd. DBS Bank Ltd along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. DBSVR, DBSVS, DBS Bank Ltd and their associates, their directors, and/or employees may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies. Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it may not contain all material information concerning the company (or companies) referred to in this report. The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by DBSVR, DBSVS and/or DBSVH (and/or any persons associated with the aforesaid entities), that: (a) (b) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments stated therein.
Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report. DBS Vickers Securities (USA) Inc ("DBSVUSA")"), a U.S.-registered broker-dealer, does not have its own investment banking or research department, nor has it participated in any investment banking transaction as a manager or co-manager in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively.
ANALYST CERTIFICATION The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report. As of 30 May 2011, the analyst and his / her spouse and/or relatives who are financially dependent on the analyst, do not hold interests in the securities recommended in this report (interest includes direct or indirect ownership of securities, directorships and trustee positions).
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COMPANY-SPECIFIC / REGULATORY DISCLOSURES DBS Vickers Securities (Singapore) Pte Ltd and its subsidiaries do not have a proprietary position in the company mentioned as 1. of 26 May 2011 2. 3. i. DBSVR, DBSVS, DBS Bank Ltd and/or other affiliates of DBS Vickers Securities (USA) Inc ("DBSVUSA"), a U.S.-registered brokerdealer, beneficially own a total of 1% or more of any class of common equity securities of the FCT as of 30 May 2011. Compensation for investment banking services: DBSVR, DBSVS, DBS Bank Ltd and/or other affiliates of DBSVUSA have received compensation, within the past 12 months, and within the next 3 months receive or intends to seek compensation for investment banking services from the Capitamall Trust, Starhill Global, Suntec REIT , China Merchant. DBSVUSA does not have its own investment banking or research department, nor has it participated in any investment banking transaction as a manager or co-manager in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively.
ii.
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