Company Guide Hutchison Port Holdings Trust

Version 5 | Bloomberg: HPHT SP | Reuters: HPHT.SI Refer to important disclosures at the end of this report

DBS Group Research . Equity 8 Dec 2016

BUY Acquire or be acquired Last Traded Price ( 7 Dec 2016): US$0.42 (STI : 2,959.84) Price Target 12-mth: US$0.48 (14% upside) (Prev US$0.56) Unexciting outlook but stock looks oversold – BUY. Hutchison Port Holdings Trust (HPHT) offers investors an attractive 8.3% Potential Catalyst: Recovery in throughput volumes prospective yield even after our DPU forecast cut, and looks Where we differ: We have higher than consensus EPS and DPU forecasts oversold at the current price level. Further upside could come from Analyst a stronger-than-expected recovery in ’s exports, acquisition- Paul YONG CFA +65 6682 3712 [email protected] driven growth or privatisation by its major shareholders. Singapore Research Team

Potential for acquisition-driven growth as organic growth stalls. What’s New Aside from the acquisition of ACT in 2013, which was partially  HPHT stands at a crossroads given its sluggish sold down soon after, and declining to acquire a 50% equity outlook, declining DPU and depressed stock price interest in Zhuhai International Container Terminals, all has been quiet on the inorganic front for HPH Trust since 2011. Given that  Acquisitions could help boost longer-term growth DPU is a critical factor for share price, we opine that HPH Trust should look out for acquisitions to boost longer-term DPU, taking  Privatisation by major shareholders cannot be ruled into account its relatively benign gearing level. out  Maintain BUY, TP S$0.48 Could a take-out offer be on the cards if stock price persists at current levels? HPHT’s share price is trading near historic lows,

offering a prospective yield of more than 8% in 2017F and at 0.6x FY16 P/BV, could be attractive as an acquisition target given its Price Relative strategic assets. Notably, major shareholders CK Hutchison and

US$ Relative Index 0.9 Temasek themselves are no strangers to privatisations. 0.9 210 0.8 190 0.8 170 0.7 150 Lowering FY17F EPS forecast by 4% and cutting FY17F DPU to HK 0.7 130 0.6 110 27cts. Amidst continued uncertainty in the outlook for global 0.6 90 0.5 0.5 70 trade, we have cut throughput growth assumptions for FY17 and 0.4 50 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 also factored in higher interest costs ahead – leading to a 4% cut Hutchison Port Holdings Trust (LHS) Relative STI (RHS) in our FY17F EPS forecast. We have also lowered our DPU forecast for FY17F to HK 27cts from HK 30cts previously.

Forecasts and Valuation Valuation: FY Dec (HK$ m) 2015A 2016F 2017F 2018F 20% potential upside to TP of US$0.48 and 8.3% prospective Revenue 12,613 12,047 12,411 12,786 yield is attractive as a defensive play. Our TP is based on a EBITDA 7,315 6,977 7,198 7,422 discounted cash flow valuation framework (weighted average Pre-tax Profit 3,870 3,755 3,423 3,471 cost of capital of 7% and terminal growth rate of 0%). While Net Profit 1,745 1,790 1,463 1,483 Net Pft (Pre Ex.) 1,745 1,433 1,463 1,483 we have cut FY17F DPU forecast to HK 27cts, the prospective Net Pft Gth (Pre-ex) (%) 11.6 (17.9) 2.0 1.4 yield of 8.3% is attractive after a recent price correction. EPS (US cts.) 2.58 2.65 2.16 2.20 EPS Pre Ex. (US cts.) 2.58 2.12 2.16 2.20 Key Risks to Our View: EPS Gth Pre Ex (%) 12 (18) 2 1 A global recession would materially impact trade and throughput Diluted EPS (US cts.) 2.58 2.65 2.16 2.20 numbers for HPHT, which would then have an impact on the Net DPS (US cts.) 4.44 3.87 3.48 3.48 group’s earnings and cash flows, and ultimately dividend payout. BV Per Share (US cts.) 63.1 61.8 60.5 62.7 PE (X) 16.3 15.8 19.4 19.1 At A Glance PE Pre Ex. (X) 16.3 19.8 19.4 19.1 EV/EBITDA (X) 10.1 10.7 10.4 9.7 Issued Capital (m shrs) 8,711 Net Div Yield (%) 10.6 9.2 8.3 8.3 Mkt. Cap (US$m/US$m) 3,659 / 3,659 P/Book Value (X) 0.7 0.7 0.7 0.7 Major Shareholders (%) Net Debt/Equity (X) 0.4 0.4 0.5 0.4 Hutchison Ports 27.6 ROAE (%) 4.0 4.2 3.5 3.6 Temasek Holdings 11.0 Earnings Rev (%): 0 (4) N/A Free Float (%) 61.4 Consensus EPS (US cts.): 2.30 2.00 2.13 3m Avg. Daily Val (US$m) 4.8 Other Broker Recs: B: 2 S: 2 H: 6 ICB Industry : Financials / Equity Investment Instruments Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P.

ASIAN INSIGHTS VICKERS SECURITIES ed: TH / sa:JC, PY Company Guide

Hutchison Port Holdings Trust

WHAT’S NEW Room for debt-funded acquisition growth. Among business trusts of at least US$1bn listed in Singapore and , DPU, which has been on a decline, is a critical driver of HPH HPH Trust has the lowest net gearing level and also lowest Trust’s share price. Since its IPO in 2011, the 12-month interest costs, which we believe indicates that there is room for outlook for HPH Trust’s DPU has generally been on a decline HPH Trust to embark on debt-funded acquisitions to boost its – from HK 44.5cts in 2011 to HK 26.4cts currently. This has EPS and DPU. primarily been due to flattish revenue growth from tepid throughput numbers and rising cost pressures affecting Gearing and interest cost for selected Business Trusts profits and cash flow. Mkt Cap Net Interest US$m Gearing Cost (%) Next 12 months' DPU vs Share Price for HPH Trust HKT TRUST 9537 87.2% 3.4 1 0.6 HK ELECTRIC INVESTMENTS 8008 84.2% 2.4 0.9 HPH TRUST 3484 45.1% 1.5 0.5 0.8 KEPPEL INFRASTRUCTURE TRUST 1293 105.2% 5.8 JINMAO HOTEL AND JINMAO INV 1011 87.5% 5.1 0.7 0.4 0.6 Source: Company, DBS Bank

0.5 0.3

0.4 Could HPH Trust be a privatisation candidate? A number 0.2 0.3 of companies in the transport sector, including NOL, SMRT, 0.2 Tigerair and China Merchants Pacific, were privatised or 0.1 0.1 acquired in 2016. HPHT’s share price is trading near historic lows, offering a prospective yield of 8.3% in 2017F and at 0.6x 0 0 1/6/2011 1/6/2012 1/6/2013 1/6/2014 1/6/2015 1/6/2016 FY16 P/BV, could be attractive as an acquisition target given its strategic assets. Notably, major shareholders CK Hutchison Price (US$) - LHS NTM DPU (HK$) - RHS (27.6%) and Temasek (11%) themselves are no strangers to Source: DBS Bank, Bloomberg Finance L.P. privatisations or take-out offers.

Trading at over +1 SD in terms of dividend yield. HPH Trust has been generally trading at between 7% and 9% dividend Temasek, through PSA (Port Authority of Singapore), is a 20% yield since 2012, though it has been at a higher range in shareholder of Hutchison Ports (which owns 27.6% of HPH 2016, at between 8.5% and 10%. The stock is currently Trust while the remaining 80% of Hutchison Ports is owned by trading at 9.2% FY16F yield, declining to 8.3% for 2017F as CK Hutchison). In 2016, three of the four companies that were we expect the group’s DPU to be lowered going into 2017 taken out were by its major shareholders. and 2018.

Dividend yield band for HPH Trust In terms of valuations, we believe HPH Trust’s current P/BV ratio of 0.6x makes it very attractive as a take-out target or privatisation play, especially taking into account that there was 10.0% already a HK$18.8bn write-down in 2013 (c. 30% of book +2sd: 9.5% value) and that the Trust generates very strong cash flows, as +1sd: 8.7% demonstrated by the prospective cash (dividend) yield of over 8%. Avg: 8.0% 8.0% Transport companies acquired or privatised in 2016 -1sd: 7.3% Name Accquirer P/B -2sd: 6.5% Neptune Orient Lines CMA CGM SA 1.05 6.0% SMRT Temasek Holdings 2.74 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Tiger Airways 6.12 Source: DBS Bank, Bloomberg Finance L.P. China Merchants Holdings China Merchants Group 1.06 (Pacific)

Source: Company, DBS Bank

ASIAN INSIGHTS VICKERS SECURITIES Page 2 Company Guide Hutchison Port Holdings Trust

3QFY16 RESULTS REVIEW assumptions and DPU forecast of 30 HK cts for FY16F, which 3Q numbers weaker y-o-y; management more is within HPHT’s DPU guidance of HK 30-32cts. However, we optimistic for 2017 believe that higher interest costs, modest core earnings growth and the debt repayment plan will lead to a lower 9M16 performance in line. HPHT’s 3Q16 revenue fell 7% y- payout in 2017F and we have thereby cut our DPU forecast o-y to HK$3,265m, mainly as soft transshipment and empty for 2017F and 2018F to HK 27cts each. cargo volumes continued to weigh. Meanwhile, net profit

declined 18% y-o-y to HK$430.2m. Cautiously optimistic for 2017. Despite current challenges, For 9M16, revenue and net profit attributable to unit holders management is cautiously optimistic of opportunities that (including the one-off rent and rates refund of HK$357m could arise for the group, on: announced in 1Q16) totalled HK$8,955m (-7% y-o-y) and (1) Execution of its mega vessel strategy, which should HK$1,328m (+10% y-o-y) respectively. These were in line come into effect in 12-18 months with our expectations, both representing 74% of our full- year forecast for FY16F. On a normalised basis (excluding (2) Potential market share gains in Hong Kong – Owing to one-off items), net profit attributable to unit holders declined its scale (HPHT commands 70-80% of Hong Kong ports’ 17% to HK$1,008m. combined operating capacity), management believes that HPHT is best positioned to benefit from the No major turnaround in sight for terminals in 4Q; continue to potential reassignment of liners’ existing shipping routes expect a weak 2016. Despite delivering an improvement in from competing terminals as new shipping alliances such performance q-o-q, we think 2016 performance will likely as Ocean Alliance which will commence operations in remain weak as the challenging operating climate does not early 2017. support a major turnaround for terminals in the Pearl River (3) Further cost savings from ongoing efficiency initiatives Delta in the immediate quarter.

2016 DPU forecast of 30 HK cts intact; 2017F DPU cut to HK 27cts. With results in line, we have maintained our

Quarterly / Interim Income Statement (HK$m) FY Dec 3Q2015 2Q2016 3Q2016 % chg yoy % chg qoq

Revenue 3,502 2,938 3,265 (6.8) 11.1 Cost of Goods Sold (1,211) (1,037) (1,076) (11.1) 3.8 Gross Profit 2,291 1,901 2,189 (4.4) 15.1 Other Oper. (Exp)/Inc (961) (965) (1,029) 7.0 6.6 Operating Profit 1,329 937 1,161 (12.7) 23.9 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 nm nm Associates & JV Inc 34.8 27.2 21.0 (39.7) (22.8) Net Interest (Exp)/Inc (153) (178) (175) (14.1) 1.8 Exceptional Gain/(Loss) 0.0 0.0 0.0 nm nm Pre-tax Profit 1,211 786 1,008 (16.8) 28.2 Tax (263) (156) (195) (25.8) 25.2 Minority Interest (423) (288) (382) 9.7 32.7 Net Profit 526 343 430 (18.2) 25.5 Net profit bef Except. 526 343 430 (18.2) 25.5 EBITDA 2,071 1,691 1,917 (7.4) 13.4 Margins (%) Gross Margins 65.4 64.7 67.0 Opg Profit Margins 38.0 31.9 35.5 Net Profit Margins 15.0 11.7 13.2

Source of all data: Company, DBS Bank

ASIAN INSIGHTS VICKERS SECURITIES Page 3 Company Guide

Hutchison Port Holdings Trust

HIT Throughput ('000 TEUs)

9824 9922.2 CRITICAL DATA POINTS TO WATCH 8933 8383 8551 8504.7 8219 Earnings Drivers: 7087.3

Modest growth in outbound cargoes to key markets expected. 5669.8

Outward bound cargoes to the US and EU showed an upward 4252.4 trend in the first nine months of 2016 and are likely to continue 2834.9 on a mild recovery path in 2017. However, due to weaker intra- 1417.5

Asia cargoes, as well as weaker transshipment and empties 0.0 throughput, overall volumes at both Yantian and Hong Kong 2014A 2015A 2016F 2017F 2018F fell in the first nine months of 2016. Yantian Throughput ('000 TEUs)

12166 12151 Looking ahead, with a continued modest recovery in outbound 12409.3 11673 11679 11913 volumes to the US and the EU, and transshipment volumes 9927.5 having bottomed, we project throughput volumes at both Hong Kong and Yantian to grow at a low single digit pace in 2017F 7445.6 and 2018F, with upside potential from a stronger-than- 4963.7 expected recovery in the global economy. 2481.9

Transshipment volumes have likely bottomed The decline in 0.0 2014A 2015A 2016F 2017F 2018F overall throughput volumes in the first nine months of 2016 at both Yantian (-4%) and Hong Kong (-11%) can be mainly HIT Tariff / TEU attributed to a firm drop in transshipment volumes, which are 590 602.14 570 579 584 more sensitive to price competition and subject to service 542 rationalisation by both individual liners and shipping alliances. 481.71 However, we believe that transshipment volumes should start to recover as the trend towards mega vessels, slot sharing among 361.28 alliance members continue and as rising bunker prices pressure 240.86 direct sailings. 120.43

But better ASP and cost control should help maintain margins. 0.00 Due to recent tariff increases and a better volume mix on lower 2014A 2015A 2016F 2017F 2018F transshipment and empty box volumes, ASPs are expected to Yantian Tariff / TEU improve slightly. Furthermore, better rationalisation of services 637 643.2 625 618 624 630 among shipping alliance members - expected to be completed in 2H16 - should also help to reduce costs and protect the 514.5 margins at Hong Kong terminals. 385.9

Yantian berth expansion for long-term growth. The 257.3 construction of three additional deep-water berths at Yantian’s 128.6 West Port starting from 2015 should support the long-term growth at Yantian Port, and help support its mega vessel 0.0 2014A 2015A 2016F 2017F 2018F strategy, which is aimed at the trend of growing ship sizes. Operating Margin (%)

Rising interest costs a drag on pretax earnings. In a rising 34.5 34.9 33.1 33.7 34.1 interest rate environment, we project higher interest costs for 31 HPH Trust ahead, which would drag core pre-tax earnings 27.9 growth to low single-digit pace. 20.9

13.9

7.0

0.0 2014A 2015A 2016F 2017F 2018F

Source: Company, DBS Bank

ASIAN INSIGHTS VICKERS SECURITIES Page 4 Company Guide Hutchison Port Holdings Trust

Leverage & Asset Turnover (x) Balance Sheet: 0.2 Net gearing to decline following start of debt repayment 0.60 0.2 0.2 program in 2017F. The Trust’s net gearing stands at a 0.50 0.1 reasonable 0.45x/0.46x in FY16/FY17F, and this should decline 0.40 0.1 0.1 as the Trust plans to pay down some debt from 2017F onwards, 0.30 to 0.41x in 2018F. 0.1 0.20 0.1 0.0 0.10 Debt repayment programme. HPHT disclosed that it will look to 0.0 0.00 0.0 repay a minimum of HK$1bn of debt annually beginning from 2014A 2015A 2016F 2017F 2018F 2017 to lower its gearing level and improve its interest coverage Gross Debt to Equity (LHS) Asset Turnover (RHS) ratios in a rising interest rate environment. Including mandatory Capital Expenditure amortisation of term loans and contributions from non- HK$m controlling interests on debt repayment, we estimate this would 2,500.0 result in a HK$300-350m use of cash per annum that would 2,000.0 lower distributable income. 1,500.0

Share Price Drivers: 1,000.0

Strong South China export growth. With market shares of c. 500.0 70% and c. 57% in Hong Kong and across the entire Pearl River 0.0 Delta region respectively, HPHT would be the prime beneficiary 2014A 2015A 2016F 2017F 2018F of a potential recovery of South China exports. A sharp rise in Capital Expenditure (-) manufacturing activity (reflected in future PMI data) could thus ROE (%) lift its share price. 4.0%

3.5% Target price of US$0.48 based on DCF. Our TP is based on a 3.0% discounted cash flow valuation framework (weighted average 2.5% cost of capital of 6.9% and terminal growth rate of 0%). 2.0%

1.5%

Key Risks: 1.0%

Transshipment volumes can be volatile. About 60% of Hong 0.5% Kong Port volumes are transshipment cargoes, which are 0.0% 2014A 2015A 2016F 2017F 2018F subject to competition from other regional ports like Singapore, Shanghai, and . Hence, pricing for Forward PE Band (x) transshipment cargoes is likely to be continuously under (x) pressure. Furthermore, transshipment volumes are vulnerable 36.6 +2sd: 35.5x to changes in the route planning and strategies of shipping companies and shipping alliances. 31.6 +1sd: 31.3x

26.6 Avg: 27.1x Exposed to higher interest rates. If interest rates were to rise at -1sd: 23x a rapid pace in 2017 and beyond, it would lead to lower-than- 21.6 expected earnings, cash flow and thus impact on dividends for -2sd: 18.8x HPH Trust. 16.6 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16

Company Background PB Band (x)

Hutchison Port Holdings Trust (HPHT) has controlling interests 1.3 (x) in container port assets located in two of the world's busiest 1.2 container port cities by throughput - Kwai Tsing, Hong Kong 1.1 +2sd: 1.07x and Yantian Port, Shenzhen, China. 1.0 +1sd: 0.95x 0.9 Avg: 0.84x 0.8

0.7 -1sd: 0.72x

0.6 -2sd: 0.6x

0.5 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16

Source: Company, DBS Bank

ASIAN INSIGHTS VICKERS SECURITIES Page 5 Company Guide

Hutchison Port Holdings Trust

Key Assumptions FY Dec 2014A 2015A 2016F 2017F 2018F

HIT Throughput ('000 9,824 8,933 8,219 8,383 8,551 TEUs) Yantian Throughput ('000 11,673 12,166 11,679 11,913 12,151 TEUs) HIT Tariff / TEU 542 570 579 584 590 Yantian Tariff / TEU 625 618 624 631 637 Operating Margin (%) 31.0 34.5 33.1 33.7 34.1

Segmental Breakdown FY Dec 2014A 2015A 2016F 2017F 2018F

Revenues (HK$m) HK 5,327 5,093 4,756 4,900 5,048 PRC 7,295 7,520 7,291 7,511 7,738 Total 12,622 12,613 12,047 12,411 12,786

Income Statement (HK$m) FY Dec 2014A 2015A 2016F 2017F 2018F

Revenue 12,622 12,613 12,047 12,411 12,786 Cost of Goods Sold (4,814) (4,575) (4,185) (4,312) (4,442) Gross Profit 7,808 8,038 7,862 8,099 8,344 Other Opng (Exp)/Inc (3,892) (3,685) (3,873) (3,923) (3,988) Operating Profit 3,916 4,353 3,989 4,177 4,356 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 Associates & JV Inc 139 141 98.7 102 105 Net Interest (Exp)/Inc (586) (624) (690) (855) (989) Exceptional Gain/(Loss) (18,756) 0.0 357 0.0 0.0 Pre-tax Profit (15,287) 3,870 3,755 3,423 3,471 Tax (731) (825) (792) (764) (774) Minority Interest (1,174) (1,300) (1,173) (1,197) (1,214) Preference Dividend 0.0 0.0 0.0 0.0 0.0 Net Profit (17,192) 1,745 1,790 1,463 1,483 Net Profit before Except. 1,564 1,745 1,433 1,463 1,483 EBITDA 6,860 7,315 6,977 7,198 7,422 Growth Revenue Gth (%) 1.9 (0.1) (4.5) 3.0 3.0 EBITDA Gth (%) (0.7) 6.6 (4.6) 3.2 3.1 Opg Profit Gth (%) (0.4) 11.1 (8.3) 4.7 4.3 Net Profit Gth (Pre-ex) (%) (6.6) 11.6 (17.9) 2.0 1.4 Margins & Ratio Gross Margins (%) 61.9 63.7 65.3 65.3 65.3 Opg Profit Margin (%) 31.0 34.5 33.1 33.7 34.1 Net Profit Margin (%) (136.2) 13.8 14.9 11.8 11.6 ROAE (%) (31.4) 4.0 4.2 3.5 3.6 ROA (%) (13.6) 1.5 1.6 1.3 1.3 ROCE (%) 3.3 3.2 3.0 3.1 3.3 Div Payout Ratio (%) N/A 171.7 146.0 160.8 158.6 Net Interest Cover (x) 6.7 7.0 5.8 4.9 4.4 Source: Company, DBS Bank

ASIAN INSIGHTS VICKERS SECURITIES Page 6 Company Guide Hutchison Port Holdings Trust

Quarterly / Interim Income Statement (HK$m) FY Dec 3Q2015 4Q2015 1Q2016 2Q2016 3Q2016

Revenue 3,502 3,035 2,752 2,938 3,265 Cost of Goods Sold (1,211) (1,050) (1,041) (1,037) (1,076) Gross Profit 2,291 1,985 1,711 1,901 2,189 Other Oper. (Exp)/Inc (961) (790) (558) (965) (1,029) Operating Profit 1,329 1,195 1,153 937 1,161 Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0 0.0 Associates & JV Inc 34.8 33.2 17.1 27.2 21.0 Net Interest (Exp)/Inc (153) (157) (169) (178) (175) Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0 Pre-tax Profit 1,211 1,072 1,002 786 1,008 Tax (263) (211) (207) (156) (195) Minority Interest (423) (327) (239) (288) (382) Net Profit 526 533 555 343 430 Net profit bef Except. 526 533 555 343 430 EBITDA 2,071 1,945 1,893 1,691 1,917

Growth Revenue Gth (%) 12.0 (13.3) (9.3) 6.8 11.1 EBITDA Gth (%) 18.6 (6.1) (2.7) (10.7) 13.4 Opg Profit Gth (%) 32.3 (10.1) (3.5) (18.8) 23.9 Net Profit Gth (Pre-ex) (%) 31.4 1.4 4.1 (38.2) 25.5 Margins Gross Margins (%) 65.4 65.4 62.2 64.7 67.0 Opg Profit Margins (%) 38.0 39.4 41.9 31.9 35.5 Net Profit Margins (%) 15.0 17.6 20.2 11.7 13.2

Balance Sheet (HK$m) FY Dec 2014A 2015A 2016F 2017F 2018F

Net Fixed Assets 69,927 68,717 68,078 66,908 65,697 Invts in Associates & JVs 4,305 4,060 4,059 4,060 4,065 Other LT Assets 30,628 30,766 30,766 30,766 30,766 Cash & ST Invts 7,799 6,841 5,643 4,443 5,938 Inventory 134 124 113 116 120 Debtors 3,318 3,723 3,556 3,664 3,774 Other Current Assets 0.0 0.0 0.0 0.0 0.0 Total Assets 116,110 114,231 112,215 109,958 110,361

ST Debt 8,190 8,911 8,911 8,911 8,911 Creditor 6,941 7,295 6,421 6,379 6,584 Other Current Liab 487 313 313 313 313 LT Debt 25,491 24,082 24,082 23,082 22,083 Other LT Liabilities 11,607 11,462 11,462 11,462 11,462 Shareholder’s Equity 44,316 42,600 41,786 40,875 42,358 Minority Interests 19,078 19,568 19,240 18,937 18,651 Total Cap. & Liab. 116,110 114,231 112,215 109,958 110,361

Non-Cash Wkg. Capital (3,976) (3,761) (3,064) (2,911) (3,002) Net Cash/(Debt) (25,883) (26,153) (27,351) (27,550) (25,056) Debtors Turn (avg days) 92.8 101.9 110.3 106.2 106.2 Creditors Turn (avg days) 1,228.5 1,481.3 1,930.4 1,678.7 1,597.5 Inventory Turn (avg days) 26.7 26.8 33.3 30.1 29.1 Asset Turnover (x) 0.1 0.1 0.1 0.1 0.1 Current Ratio (x) 0.7 0.6 0.6 0.5 0.6 Quick Ratio (x) 0.7 0.6 0.6 0.5 0.6 Net Debt/Equity (X) 0.4 0.4 0.4 0.5 0.4 Net Debt/Equity ex MI (X) 0.6 0.6 0.7 0.7 0.6 Capex to Debt (%) 3.3 6.2 6.8 5.5 5.6 Z-Score (X) 0.2 0.2 0.1 0.1 0.2

Source: Company, DBS Bank

ASIAN INSIGHTS VICKERS SECURITIES Page 7 Company Guide

Hutchison Port Holdings Trust

Cash Flow Statement (HK$m) FY Dec 2014A 2015A 2016F 2017F 2018F

Pre-Tax Profit (15,287) 3,870 3,755 3,423 3,471 Dep. & Amort. 2,805 2,821 2,888 2,920 2,961 Tax Paid (761) (1,226) (792) (764) (774) Assoc. & JV Inc/(loss) (139) (141) (98.7) (102) (105) Chg in Wkg.Cap. 169 (40.9) (696) (153) 90.7 Other Operating CF 18,610 (298) 0.0 0.0 0.0 Net Operating CF 5,397 4,985 5,056 5,324 5,644 Capital Exp.(net) (1,106) (2,042) (2,250) (1,750) (1,750) Other Invts.(net) 0.0 0.0 0.0 0.0 0.0 Invts in Assoc. & JV 0.0 0.0 0.0 0.0 0.0 Div from Assoc & JV 142 138 100 100 100 Other Investing CF 2,560 711 0.0 0.0 0.0 Net Investing CF 1,596 (1,194) (2,150) (1,650) (1,650) Div Paid (3,572) (3,310) (2,604) (2,374) 0.0 Chg in Gross Debt (173) (629) 0.0 (1,000) (999) Capital Issues 0.0 0.0 0.0 0.0 0.0 Other Financing CF (1,268) (810) (1,500) (1,500) (1,500) Net Financing CF (5,013) (4,749) (4,104) (4,874) (2,499) Currency Adjustments 0.0 0.0 0.0 0.0 0.0 Chg in Cash 1,980 (958) (1,198) (1,200) 1,495 Opg CFPS (US cts.) 7.74 7.44 8.51 8.11 8.22 Free CFPS (US cts.) 6.35 4.36 4.15 5.29 5.76 Source: Company, DBS Bank

Target Price & Ratings History

0.58 US$ 12-mth 0.56 Date of Closing S.No. T arget Rating Report Price 0.54 Price 1: 04 Feb 16 0.46 0.61 BUY 0.52 2: 19 Apr 16 0.47 0.57 BUY 0.50 3: 28 Jul 16 0.49 0.56 BUY

0.48 2 3 0.46

0.44 1

0.42

0.40

0.38 Dec-15 Apr-16 Aug-16 Dec-16

Note : Share price and Target price are adjusted for corporate actions.

Source: DBS Bank Analyst: Paul YONG CFA Singapore Research Team

ASIAN INSIGHTS VICKERS SECURITIES Page 8 Company Guide Hutchison Port Holdings Trust

DBS Bank recommendations are based an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return i.e. > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame) Share price appreciation + dividends

Completed Date: 8 Dec 2016 07:21:03 Dissemination Date: 8 Dec 2016 07:56:09

GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Bank Ltd. This report is solely intended for the clients of DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd, its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBS Bank Ltd.

The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the “DBS Group”)) do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies.

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The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that:

(a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and (b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments stated therein.

Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets.

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DBS Vickers Securities (USA) Inc ("DBSVUSA")"), a U.S.-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage in market-making.

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Hutchison Port Holdings Trust

ANALYST CERTIFICATION The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in the report. The DBS Group has procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of research reports. As of 8 Dec 2016, the analyst(s) and his/her spouse and/or relatives who are financially dependent on the analyst(s), do not hold interests in the securities recommended in this report (“interest” includes direct or indirect ownership of securities). The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment banking function of the DBS Group and procedures are in place to ensure that confidential information held by either the research or investment banking function is handled appropriately.

COMPANY-SPECIFIC / REGULATORY DISCLOSURES 1. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates have a proprietary position in Hutchison Port Holdings Trust recommended in this report as of 31 Oct 2016. 2. DBS Bank Ltd does not market make in equity securities of the issuer(s) or company(ies) mentioned in this Research Report.

Compensation for investment banking services: 3. DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively.

4. Disclosure of previous investment recommendation produced: DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates may have published other investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12 months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published by DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates in the preceding 12 months.

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For any query regarding the materials herein, please contact Paul Yong (CE. No. ASE988) at [email protected].

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Wong Ming Tek, Executive Director, ADBSR

ASIAN INSIGHTS VICKERS SECURITIES Page 10 Company Guide Hutchison Port Holdings Trust

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This report is disseminated in the by DBS Vickers Securities (UK) Ltd, ("DBSVUK"). DBSVUK is authorised and regulated by the Financial Conduct Authority in the United Kingdom.

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DBS Bank Ltd 12 Marina Boulevard, Marina Bay Financial Centre Tower 3 Singapore 018982 Tel. 65-6878 8888 e-mail: [email protected] Company Regn. No. 196800306E

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