The Trust's volume growth trends exceeded expectations.
Hutchison Port Holdings Trust registered strong throughput growth in 2Q14, with HIT volumes up by almost 14% (low base effect in 2Q13 due to the port worker strikes) and Yantian Port volumes up 7.7%, driven by higher transshipment volumes.
According to a research report from DBS Bank Ltd., Yantian Port continues to gain market share in Shenzhen as overall volume growth in Shenzhen was much lower.
However, revenue rose by only 1% to HK$3,064m in 2Q14, as throughput growth at the Trust’s container terminals in HK and Shenzhen were largely offset by ASP decline arising from unfavourable throughput mix from the liners.
Operating profits were also down by about 8% y-o-y, as expected, owing to increase in external contractor costs and higher wages and staff costs, in line with inflationary pressures
Here's more from DBS Bank Ltd.:
Expect volume improvements to underpin sentiment. Management believes that outlook for both US and Europe trade flows are encouraging for the rest of the year.
In the US, manufacturing activities gained momentum in June 2014 and the number of new orders hit its highest level in more than four years.
Consumer sentiment in the US also rose in June and unemployment rate fell to near a 6-year low of 6.1%. Economic recovery in Eurozone is also expected to continue at a moderate pace in the coming months.
Hence, outbound cargoes to US and Europe are showing positive trends and niche trade routes of Far East – Africa, Central and South America and Oceania are also set to grow.
Proxy to global recovery theme; yield of over 7% for FY14 is attractive. The Trust declared 18.70Hkcts interim DPS for 1H14 and is looking to deliver at least stable DPU in 2014, driven by mid-single digit volume growth at its terminals.
Given stronger trade indicators, we revise up our volume growth assumptions for HPHT from low single digits to mid single digit levels.
Our BUY call is maintained with an adjusted TP of US$0.78, which implies total return of about 12% at current levels.
While core EPS growth in FY14 is likely to be negative due to impact of higher taxes at Yantian Port, earnings growth trajectory should resume from FY15 onwards.
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