BUY
Last Traded Price (23 Jun 2021): US$0.230 (STI : 3,109.20)
Price Target 12-mth: US$0.32 (39% upside)
Analyst
Paul YONG, CFA +65 6682 3712 paulyong@dbs.com

Poised for strong 1H21 earnings


Investment Thesis:


On track for strong 1H21 showing with firm May throughput numbers. Yantian port recorded 19.5% y-o-y growth in throughput volumes to 1.061m TEUs in May while Kwai Tsing port saw an increase of 9.7% y-o-y to 1.328m TEUs. YTD volumes at both Yantian (+40.2% y-o-y) and Kwai Tsing (+6.3% y-o-y) ports have surpassed pre-COVID-19 levels.


June numbers to be weak due to recent outbreak in Shenzhen but still on course to meet FY21F expectations. June throughput will be impacted but labour and capacity constraints should ease in the weeks ahead, improving waiting times and throughput volumes. We think that our FY21F throughput volume forecast (+3% y-o-y) is still conservative with China ramping up the testing and vaccinations, enabling the situation to stabilise soon. Even if volumes at Yantian in June are half of that in May, 1H21 Yantian volumes will still be up by 20% y-o-y.


New capacity from Yantian east port to come on stream from 2025 onwards to support long-term growth. Capacity is expected to be raised by c.3.4m TEUs, serving mega vessels. This is a positive development for HPH Trust (HPHT) as it helps increase capacity as current berths are already operating at optimal levels and it highlights the long-term growth potential of Yantian port.
Valuation:


Maintain BUY and TP of US$0.32. Our discounted cash flow (DCF)-based target TP assumes weighted average cost of capital (WACC) of 8.0% (cost of capital 10.0%).