Singapore | Transportation Infrastructure

Asia Pacific Equity Research

HPH TRUST | HOLD MARKET CAP: USD 6.4B

29 Jul 2014 Company Update

AVG DAILY TURNOVER: USD 15M

PERSISTENT HEADWINDS FROM COST PRESSURES

HOLD (maintain) Fair value

2Q14 figures in line Continued cost pressures FV unchanged at US$0.68

• • •

US$0.68

add: 12m dividend forecast

US$0.06

versus: Current price

US$0.75

12m total return forecast

-1%

1H14 interim DPU at 18.70 HK-cents 2Q14 PATMI came in at HK$368.4m (EPU: 4.23 HK-cents), which decreased 12.4% YoY mostly due to continued cost pressures and lower contributions from ACT given the divestment of a 60% stake last quarter. Accounting for divestment gains, we estimate that 1H14 PATMI constitute 47.1% of our full year forecast, which we judge to be mostly within expectations. In terms of the topline, the trust reported 2Q14 revenue of HK$3063.9m, up 1.0% due to higher container throughput at HIT and YICT, offset by the absence of ACT contributions as it become an associated company after the stake sale. The trust declared an interim DPU of 18.70 HK cents for 1H14.

Analysts

Higher throughput at group’s deep-water ports The trust reported that outbound cargoes both to the US and EU continued their uptrends in 2Q14. The throughput of HPHT’s deepwater ports in 1H14 increased ~6%, with throughput at HIT and YICT growing 3.7% and 4.9%, respectively. YICT’s throughput growth was driven by transshipment and US cargoes, while HIT’s higher throughput was due to higher transshipment volume, partially offset by weaker intra-Asia cargoes. The average revenue per TEU for HK and China was mostly flat YoY; fewer concessions were granted to some liners for China which was offset by a higher proportion of transshipment throughput handled.

BBRG ticker

HPHT SP

Reuters ticker

HPHT.SI

Maintain HOLD with unchanged US0.68 FV Over the quarter, we continue to see upward pressure in terms of cost of services rendered, which increased 9.8% YoY due to higher external contractor costs and inflationary pressures while staff cost also increased 7.7%. 1H14 capex is up 64% to HK$643m, as management continues its expansionary plans at Yantian to add one berth each year from 2015. Maintain HOLD with an unchanged fair value estimate of US$0.68. While conditions remain mixed due to an uncertain outlook and persistent cost pressures, we see the downside to be limited here due to an attractive FY14F dividend yield of 7.4%.

Eli Lee (Lead) ● +65 6531 9112 [email protected] Wong Teck Chin (Andy) ● +65 6531 9817 [email protected] Key information Market cap. (m)

US$6,403

Avg daily turnover (m)

US$11

Avg daily vol. (m)

15.1

52-wk range (US$)

0.6 - 0.795

Free float (%)

31.3

Shares o/s. (m)

8,711.1

Exchange

SGX

ISIN code

NS8U

GICS Sector

Industrials Transportation Infrastructure Cheung Kong Hding 30.1%

GICS Industry Top shareholder

1m

3m

Company (%)

Relative total return

3

10

12m 6

STI-adjusted (%)

1

6

-1

Price performance chart

Sources: Bloomberg, OIR estimates

Industry-relative metrics Key financial highlights Year Ended Dec 31 (HKD'm)

FY12

FY13

FY14F

FY15F

Revenue and other income

12,427.0

12,384.4

13,133.7

13,662.9

Cost of services rendered

-4,312.8

-4,494.4

-4,866.0

-5,012.0

-267.9

-288.3

-305.7

-318.1

2,236.9

1,674.8

1,602.2

1,598.8

25.7

19.2

18.4

18.4

na

na

19.9

20.4

22.5

30.0

31.4

31.5

0.7

0.8

0.8

0.8

51.2

41.0

42.5

40.5

8.9

7.1

7.4

7.0

Staff costs PATMI Earnings per unit (HK cents) Earnings per unit (consensus) PER (x) P/NAV (x) Distribution per unit (HK cents) Distribution yield (%)

Please refer to important disclosures at the back of this document.

Note: Industry universe defined as companies under identical GICS classification listed on the same exchange. Sources: Bloomberg, OIR estimates

MCI (P) 004/06/2014

OCBC Investment Research Singapore Equities

Exhibit 1: Q ua rte rly fina nc ia l highlights 2 Q 13 (US $ m)

2 Q 14 (US $ m)

Revenue and o ther inco me

3,032

3,064

1.0%

2,945

4.1%

Co st o f services rendered

-1,103

-1,211

9.8%

-1,117

8.4%

Y r End De c

Staff co sts Depreciatio n and amo rtisatio n Other o perating inco me

% Chg (Y oY )

1Q 14 (US $ m)

% Chg (Q oQ )

-71

-77

7.7%

-75

1.7%

-723

-692

-4.2%

-741

-6.6%

26

6

>500%

246

>500%

Other o perating expenses

-212

-216

1.6%

-266

-18.9%

To tal o perating expenses

-2,083

-2,190

5.1%

-1,923

13.9%

Operating pro fit

949

874

-7.9%

1,022

-14.4%

Interest and o ther finance co sts

-157

-148

-5.6%

-134

10.7%

5

4

-19.1%

3

11.8%

33

37

14.2%

28

32.5%

Share o f asso ciates' results Share o f jo int ventures' results P ro fit befo re tax

830

767

-7.5%

919

-16.5%

Tax

-80

-130

61.8%

-158

-17.7%

P ro fit after tax

749

637

-14.9%

761

-16.3%

0

0

nm

0

nm

- Unitho lders o f HP H Trust

421

368

-12.4%

559

-34.1%

- No n co ntro lling interests

329

269

-18.2%

203

32.8%

Net pro fit attributable to :

So urces: Co mpany financials

2

OCBC Investment Research Singapore Equities

Company financial highlights Income statement Year Ended Dec 31 (HKD'm) Revenue and other income Cost of services rendered Staff costs Depreciation and amortisation Total operating expenses Operating profit Interest and other finance costs Share of joint ventures' results Pretax profit PATMI

Balance sheet As at Dec 31 (HKD'm) Fixed assets Projects under development Leasehold land and land use rights Goodwill Cash Total assets Long-term bank loans Total liabilities Total equity Total liabilities and equity

Cash flow statement Year Ended Dec 31 (HKD'm) Cash generated from operations Interest and other finance costs paid Tax paid Net cash from operating activities Capital expenditure Net cash from investing activities Distributions to unitholders Net cash from financing activities Cash at beginning of period Cash at end of period

Key rates & ratios Earnings per unit (HKD) NAV per unit (HKD) PER (x) P/NAV (x) Distributable income (HKD'm) Weighted average number of ordinary units (m) Distribution per unit (HK cents) Distribution yield (%) Cash interest payment rate (%) Debt to equity ratio (%)

FY12

FY13

FY14F

FY15F

12,427 -4,313 -268 -2,753 -8,081 4,347 -598 141 3,910 2,237

12,384 -4,494 -288 -2,854 -8,453 3,932 -641 101 3,411 1,675

13,134 -4,866 -306 -2,972 -8,801 4,333 -762 73 3,662 1,602

13,663 -5,012 -318 -2,995 -9,225 4,438 -850 53 3,658 1,599

FY12

FY13

FY14F

FY15F

26,248 1,315 44,959 41,629 6,169 134,850 29,109 49,343 85,507 134,850

28,123 1,848 44,579 42,500 5,819 137,166 22,999 52,934 84,232 137,166

28,561 1,724 43,094 42,500 5,819 135,872 23,159 53,800 82,072 135,872

28,926 1,762 41,596 42,500 5,819 134,610 23,239 54,459 80,151 134,610

FY12

FY13

FY14F

FY15F

5,634 -479 -745 4,411 -750 -422 -4,132 -5,710 7,890 6,169

6,210 -476 -580 5,155 -706 -4,294 -3,997 -1,211 6,169 5,819

7,172 -512 -732 5,927 -1,600 -1,120 -4,148 -4,807 5,819 5,819

7,487 -765 -732 5,990 -1,800 -1,420 -3,945 -4,570 5,819 5,819

FY12

FY13

FY14F

FY15F

0.26 7.71 22.5 0.7 4,615 8,709 51.2 8.9 1.6 34.1

0.19 7.48 30.0 0.8 3,413 8,711 41.0 7.1 1.5 40.1

0.18 7.21 31.4 0.8 3,706 8,711 42.5 7.4 2.3 41.4

0.18 6.97 31.5 0.8 3,525 8,711 40.5 7.0 2.5 42.5

Source: HPH Trust

Company financial highlights

OCBC Investment Research Singapore Equities

SHAREHOLDING DECLARATION: The analyst/analysts who wrote this report holds/hold NIL shares in the above security.

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RATINGS AND RECOMMENDATIONS: - OCBC Investment Research’s (OIR) technical comments and recommendations are short-term and trading oriented. - OIR’s fundamental views and ratings (Buy, Hold, Sell) are medium-term calls within a 12-month investment horizon. - As a guide, OIR’s BUY rating indicates a total return in excess of 10% based on the current price; a HOLD rating indicates total returns within +10% and -5%; a SELL rating indicates total returns less than -5%.

Co.Reg.no.: 198301152E Carmen Lee Head of Research For OCBC Investment Research Pte Ltd

Published by OCBC Investment Research Pte Ltd

Important disclosures