Drewry Maritime Research has raised the 2017 global throughput forecast. In particular, US and Europe containerised volumes are expected to accelerate 3.0% and 3.9% this year; a marked improvement from last year’s forward projection of 2.0% and 1.6% respectively. As HPHT has significant trade exposure to the US and Europe, we believe the market is pricing in a strong 2Q17 report card which will be revealed on 19 July 2017.
Volume-driven play. While buoyant macro data in the US and Eurozone lifted the share price off 52-week lows, HPHT’s valuation rally in June was underpinned by the one-off rejigging of shipping line alliance members. Reshuffling of alliance members gives rise to a phenomenon known as operational phasing. The new alliances, Ocean and The Alliance, have made calls at HPHT’s terminals in Hong Kong since 1 April 2017 to unload containers from smaller vessels (phasing out), before loading them onto larger vessels (phasing in). This has, in part, contributed positively to Hong Kong throughput numbers.
HPHT needs to be patient. At the group level, HPHT will count throughput handled at new acquisition Huizhou International Container Terminal (HICT), though the approximately 20k teu/month throughput does not amount to much in comparison with Yantian and Hong Kong. HPHT aims to move intra-Asia export cargoes to HICT, freeing capacity for Yantian to focus on higher-yielding Asia-Europe and Asia-US trades. Hence, HPHT needs to be patient as management projects it to turn cash flow positive in 2020.
Would throughput growth translate into earnings? We believe the three factors below may drive FY17e earnings growth.
Valuation turning point in sight? Since the IPO (listing price: USD 1.01), management has fallen short of expectations. We believe HPHT is fairly valued at USD 0.44 (WACC: 8.6%), translating to 22.8x FY17e earnings. Although the Singapore-listed Trust trades at a slight premium to our proprietary Drewry Port Index (at 20.9x PE), it is supported by an attractive dividend yield and backed by a potential windfall gain in land sale. With the upcoming report card, we will be keen to look at cash margins and interest burden that directly impact semi-annual distributions. Until then, we are not convinced about upgrading the stock purely on throughput expansion.
Source: Drewry Maritime Financial ResearchPrevious Next