HPH Trust's net profit dropped 26% to HK$421m

Rising staff costs dragged growth.

According to Barclays research, HPHT reported 2Q2013 attributable net profit of HK$421mn, -26% y/y. The result was generally disappointing and tracking below Barclays' FY2013 estimates.

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2Q2013 EPS of 4.83 HK cents: 2Q13 profit attributable to unitholders was HK$421mn, +11% q/q (1Q13 of HK$380mn) and -26% y/y (2Q12 of HK$567mn). 6M13 profit of HK$801mn declined 21% and only accounts for 33% for our FY2013E profit estimate of HK$2,436mn. For comparisons, 1H2012 profit accounted for 44% of FY2012A profit.

Interim dividend of 18.7 HK cents : The company declared an interim DPU of 18.7 HK cents, implying an annualized yield of 6.6% based on today’s close. The interim distribution ex-date is 5 August 2013. Our FY13E DPU estimate of 43.2 HK cents.

1H2013 volume -1% y/y: 1H2013 volumes compared to our FY13E throughput growth estimate of +5% y/y. The major disappointment came from slowing throughput growth at its Hong Kong port in 2Q, which was -20% y/y, on the back of weaker underlying demand and cargo diversions from the labour dispute at the port of Hong Kong. 2Q13 throughput growth at Yantian was -1% y/y.

Falling revenue and rising costs: 2Q2013 revenue declined by -2.6% y/y. Total 2Q2013 operating cost increased 2.7%, primarily driven by increases in depreciation and amortization.

However, staff cost also rose 6% y/y despite falling container volumes. The result was a 26% y/y decline in profit attributable to shareholders.

Net income after adding back depreciation in our view is a better measure of trust performance and indicative of near-term dividend levels. Net income before depreciation expense declined 5.9% y/y in 2Q2013. Net income before depreciation expense margin in 2Q2013 declined to 48.5% from 50.2% in 2Q2012.