Hutchison Port Holdings Trust (SGX: NS8U) is a registered business trust which allows investment opportunity in the container terminal business. HPH Trust’s sponsor is Hutchison Port Holdings Ltd, a global leader in the container port sector by throughput.
Hutchison Port Holdings (HPH) Trust primarily invests, develops, operates and manages deep-water (port which can accommodate a fully-laden vessel with a capacity of >8,000 TEU) container ports in China’s Guangdong Province, as well as Hong Kong and Macau. This is collectively known as the Pearl River Delta. The Trust owns 4 terminals located in Kwai Tsing, Hong Kong and Shenzhen China which are 2 of the world’s busiest port destinations. These terminals are Hong Kong InternationalTerminals, COSCO-HIT Terminals, Asia Container Terminals and Yantian International Container Terminals. These terminals operate 32 container berths with a combined throughput of approximately 22.8 million TEU.
Is There Any Bargain for the Opportunistic Investor?
To have purchased its IPO back in 2011 and having held the stock till now would have netted a -33% loss in an investor’s books. However, the Trust is currently paying shareholders a juicy 7.2% dividend yield! Mmm. Does this mean there’s some interesting opportunity here?
HPH Trust has a total asset size of HK$133 billion, mostly consisting of both fixed assets (stated as above) and leasehold land & land use rights at around 51% of total assets. In FY2012 and FY2013, HPH Trust has been able to generate a healthy operating cash flow HK$4.8 billion per year with a total capital spending of around HK$5.3 billion in both fiscal years. With its terminal businesses operating primarily in Greater China, HPH Trust collects a total revenue of > HK$12 billion in FY2012 and FY2013 and earns an average net profit of HK$3.33 billion over both periods. Moreover, the company’s capital structure is conservative with total debt/equity ratio at 0.64x, allowing its operating profits to adequately cover interest payments by >6x.
The key risk here is that HPH Trust’s business is highly dependent on global trades which is impacted by the global and regional economy. This affects container volume handled by the Trust which was faced by the ports sector during the global financial crisis where there was a significant decline in global throughput.
Value in Action
HPH Trust shares might have been a laggard thus far, but its current dividend yield seems attractive enough to warrant a closer look. In FY2013, the Trust has paid out a total of Hk$3.6 billion in distributions to unit-holders, a distribution yield of approximately 7.8%.
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All views and opinions articulated in the article were expressed in Willie’s personal capacity and do not in any way represent those of his employer and other related entities. Willie does not own any shares in the companies mentioned above.