Bryan Wu
OCBC Investment Research has kept a “buy” rating for Hutchison Port Holdings Trust (HPH Trust) with a lower target price of 26 US cents (36.5 cents) from 28 US cents previously.
The “modest adjustment” to HPH’s target price comes off the back of a revised forecasted growth rate for overall throughput volume, cost assumptions and an increased risk free rate of 3%, writes analyst Chu Peng.
The throughput volume of Chinese ports improved by 7% m-o-m in May 2022 with Shanghai volume rebounding, compared to its marginal decrease of 0.8% m-o-m in April 2022, when stronger volumes from Ningbo and Shenzhen ports offset weaker throughput volume from Shanghai due to lockdowns in Shanghai and other domestic cities in China, says Chu.
“As we head into 2H2022, we could see further recovery ahead as manufacturers restore production. However, the outlook remains uncertain given global economic weakness and supply chain disruptions,” writes the analyst.
“Given additional Covid-19 preventive measures and high fuel costs, HPH Trust could see higher operating costs. Yantian had implemented a ‘closed loop’ system with centralised accommodation for high-risk frontline staff. While this posed additional costs to HPH Trust, this helped Yantian to maintain normal operation despite the lockdown in Shenzhen and Shanghai,” she adds.
HPH Trust also introduced water transport as an alternative route to transport essential goods from Yantian to Hong Kong as cross-border trucking was restricted during the lockdown periods.
Chu notes that positively, global port congestion remains elevated and HPH Trust should continue to benefit from higher storage income as containers stay at the yards for longer periods of time, partially compensating for some of the decline in volume.
US-China’s improving trade relations and global trade picking up more strongly than expected could also prove to be catalysts for HPH Trust, while escalations in trade tensions and the slowdown of the global economy remain investment risks.