Results Analysis: 1H22 net profit at 60% of full year forecast; mgmt more cautious for 2H22
- Better than expected core set of results with revenue/net profit HK$6.5bn/716m, making up 54%/60% of our full year forecast, led by higher revenue per TEU
- Interim DPU of HK 6.5cts, same as last year
- 2H22 earnings could moderate on weaker outlook and cost pressures but full year earnings should at least meet our forecasts
- Maintain BUY and TP of US$0.37; assuming HPHT maintains the same DPU as FY21, yield would be c. 8%
Better than expected 1H22 core set of results. HPHT’s overall revenue rose by 8.0% y-o-y to HK$6.5bn, led by higher average revenue per TEU for both Hong Kong and China on the back of higher storage income. Cost of services rendered (which is largely a variable cost) rose 11.7% y-o-y due to higher direct charges from higher yard density and increase in external contractors’ costs, higher fuel and electricity price, RMB appreciation and additional COVID-19 measures costs. Staff costs also rose 6.6% y-o-y on general cost inflation and more headcount but other operating expenses were well managed at only 0.8% y-o-y increase. Net profit attributable to shareholders declined by 6.8% y-o-y to HK$716m, but came in above our projections, making up 60% of our full year forecast.
2H22 earnings likely to moderate on weaker outlook and cost pressures. With China sticking to its Covid-zero strategy, we expect the Chinese port congestion to continue and operational costs to climb on high yard density. Coupled with cost pressures from the high oil price and the general inflationary environment with knock-on effects on wages and consumer sentiment, as well as lower government subsidies this year, 2H22 earnings could moderate slightly. Notwithstanding the above, full year earnings should still show good growth from FY20 (not comparing to FY21 as there was a high level of government subsidies).
Balance sheet improvement. HPHT paid down more debt than expected, with its total consolidated debt at HK$27.3bn as at 30 June 2022 compared to HK$29.0m as at 31 December 2021. We estimate that Its net-debt to EBITDA could further fall, from an already low 2.1x at end FY21, to below 2x by end FY22F. This will be an all-time low for the Trust and bodes well for sentiment in this current environment. Further, c.86% of the Trust’s debt has fixed interest rate, which should help to mitigate expected increases in the Fed Funds Rate in the next few years.
Maintain BUY and TP of US$0.37. The Trust proposed an interim dividend of HK 6.5cts for 1H22, the same as last year. We continue to like the counter as a yield play and with its resilient earnings. We believe there is room for HPHT to raise dividends further in the next few years even as it continues to pay down debt in the near-term.
Briefing at 3.30pm later, we will update if there are any significant takeaways from the call.