DBS Group Research maintained its " buy" call on Hutchison Port Holdings Trust (HPH Trust) and raised its target price to US$0.37 from US$0.33 on strong FY2021 earnings and a resilient outlook.

 

In a research note on Thursday (Feb 10), analyst Paul Yong lifted estimates for FY2022 by 25 per cent after HPH Trust reported a net profit growth of 110 per cent year on year to HK$1.75 billion (S$301.7 million), 58 per cent above DBS' s forecast.

 

He noted that higher storage income was the main contributor to the trust' s strong performance and expects this to continue into the new financial year.

 

" While it remains to be seen if the same magnitude of storage income can be recorded in FY2022, we think that this revenue stream will remain significant in FY2022, given the still ongoing port congestions and Covid outbreaks in China and globally," the analyst said.

 

Yong predicts FY2023 earnings will remain similar to FY2022 on the back of higher container handling rates and lower costs offsetting lower storage income.

 

HPH Trust' s earnings are anticipated to stay " resilient" in the next few years despite short-term volume uncertainty and higher interest rates, the analyst said. He attributes this to the trust' s cost management programmes that have helped it to lower its cost base and reduce debt by nearly HK$5 billion in the last 5 years.

 

According to the analyst, HPH Trust would not be greatly affected by the expected increase in the Federal Reserve' s funds rate as 80 per cent of its debt is on fixed rates.

 

Yong sees more upside to the distribution per unit guidance of 14.5-15.5 Hong Kong cents in FY2022. He believes there is room for a raise in dividends because of the trust' s " strong cash flow generation, resilient earnings, and a rapidly improving balance sheet" .

 

This comes after HPH Trust declared a final dividend of 8 Hong Kong cents, which brought full year dividends to 14.5 cents, 0.5 cent higher than DBS' s estimate.

 

With a 7.9 per cent prospective yield, the stock is attractive in Yong' s view.

 

HUTCHISON Port Holdings Trust (HPH Trust) HPH Trust USD: NS8U +10.64% posted a distribution per unit (DPU) of 8 Hong Kong cents for its second half ended Dec 31, 2021, up 3.9 per cent from 7.7 cents a year ago.

 

This brings its DPU for the full year to 14.5 cents, from 12 cents in the year-ago period, HPH Trust said in a bourse filing on Wednesday (Feb 9).

 

For the full year, HPH Trust posted a profit of HK$1.75 billion (S$301.7 million), a 110.1 per cent increase from the HK$831.4 million posted in FY2020.

 

This was driven by higher storage income and lower interest expenses at some of its terminals.

 

Its revenue and other income for FY2021 was up 24 per cent to HK$13.24 billion, from HK$10.7 billion a year ago.

 

HPH Trust said full-year throughput of its ports was 4 per cent higher than the previous year.

 

Throughput from Yantian International Container Terminals was up 6 per cent, largely due to an increase in outbound cargoes to the US and Europe as well as empty cargoes.

 

Meanwhile, the combined throughput of HPHT Kwai Tsing - which comprises Hongkong International Terminals (HIT), Asia Container Terminals (ACT) and Cosco-HIT - was comparable, although marginally lower.

 

Additionally, HPH Trust also recorded a 116.3 per cent on-year increase in its other operating income to HK$417.9 million for FY2021, which it attributed to higher government subsidies.

 

Distributable income for the half year was up at HK$696.9 million, from HK$670.8 million a year ago.

 

As for FY2021, the total distribution for the year was HK$1.26 billion, from HK$1.05 billion a year ago.

 

The distribution will be paid out on Mar 25, after books closure on Feb 17.

 

HPH Trust noted that 2021 was " a challenging but rewarding year" , as it posted improved financial results amid increased volume and cost control.

 

For 2022, it expects the shortage of empty containers may exert future pressure on the global supply chain as manufacturing in China picks up after Chinese New Year. Supply chain disruptions and global port congestions will also likely linger for an extended period of 2022, HPH Trust added.