Highlights
Operating results in line with estimates. Excluding the gain on partial divestment of Asia Container Terminals (ACT) of HK$244m and forex losses of HK$65m, operating performance in 1Q14 was largely flat y-o-y. Revenue was up 3% but higher operating expenses due to increase in wages and staff costs led to lower margins. Revenue was boosted by 2% volume growth YTD at Yantian Port, which continues to gain market share, as overall volumes in Shenzhen were actually down about 2% in 1Q14. Over at HK, the combined throughput of HIT, COSCO-HIT and ACT was up about 4% y-o-y, mainly driven by the additional contribution from ACT. However, going forward, revenue contribution from ACT will cease as it will be accounted as a joint venture as the Trust retains only a 40% stake post divestment.
Our View
Expect sequential improvement in HK volumes to underpin sentiment. The Trust is looking to deliver at least stable DPU in 2014, driven by mid-single digit volume growth at its terminals. The Trust’s HK operations especially, look set to post encouraging growth numbers over the following months, due to the low base effect caused by labour disputes in
FY13. Management noted that shipping lines’ confidence in HK Port as a sustainable gateway to China seems to be returning, especially with new wage agreements with port contractors for 2014 now agreed and settled. Yantian Port also seems on track to meet our low single digit growth projections as both US and EU trade flows have improved this year on the back of mild improvements in economic activity.
Recommendation
Proxy to global recovery theme; prospective yield of close to 8% for FY14 is attractive. We maintain our view that the worst is over for HPHT and reiterate our BUY call. While core EPS growth in FY14 is likely to be negative due to the impact of higher taxes at Yantian Port, earnings growth trajectory should resume from FY15 onwards. Our TP is unchanged at US$0.76.
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