Company Guide Hutchison Port Holdings Trust

Version 6 | Bloomberg: HPHT SP | Reuters: HPHT.SI Refer to important disclosures at the end of this report

DBS Group Research . Equity 13 Feb 2017

Disappointing DPU guidance HOLD (Downgrade from BUY)

Last Traded Price ( 10 Feb 2017): US$0.44 (STI : 3,100.39) Downgrade to HOLD with TP of US$0.42 as DPU guidance of Price Target 12-mth: US$0.42 (-6% downside) (Prev US$0.48) 20-23 HKcts for 2017 underwhelms. Citing an uncertain

business outlook, especially for ’s transhipment Potential Catalyst: Recovery in throughput volumes Where we differ: DPU forecasts are below consensus business and re-iterating the plan to pare down its debt, as well as rising interest rates, Hutchison Port Holdings Trust’s (HPHT) Analyst Paul YONG CFA +65 6682 3712 [email protected] DPU guidance for 2017 now stands at 20-23 HKcts, which is Singapore Research Team [email protected] lower than our previous estimate.

We cut our 2017 and 2018 DPU forecasts to 22 HKcts p.a. What’s New Given the lower DPU, we have inputed a higher WACC of 7.4% FY16 earnings of HK$1,714m and DPU of 30.6 HKcts  (from 7% previously) for DCF, leading to a lower TP of US$0.42. were in line with expectations At current price, the prospective yield of 6.4% seems fair. DPU guidance of 20-23 HKcts for 2017 is lower than  our previous forecast Tough operating environment as new alliances challenge transshipment volumes. Amid the deteriorating shipping  We now assume lower DPU of 22 HKcts per year in 2017 and 2018 environment, the formation of new shipping alliances (such as Ocean Alliance which is due to commence operations in April  Downgrade to HOLD with TP of US$0.42 2017) that are increasingly focused on efficiency could put further pressure on transshipment volumes – which are purely Price Relative viewed as costs to shipping lines. US$ Relative Index 0.9 0.9 209 Project lower earnings of HK$1,445m for FY17F. FY16 earnings 0.8 189 0.8 169 of HK$1,714m and 30.6 HKcts DPU were in line with our 0.7 149 0.7 129 0.6 109 expectations. For 2017, we project lower earnings of 0.6 0.5 89 0.5 69 HK$1,445m for the group, mainly as we expect potential tax 0.4 49 Feb-13 Feb-14 Feb-15 Feb-16 Feb-17 savings arising from HPHT’s recently approved “High and New

Hutchison Port Holdings Trust (LHS) Relative STI (RHS) Technology Enterprise” status to be more than offset by slightly Forecasts and Valuation FY Dec (HK$ m) 2015A 2016A 2017F 2018F lower throughput (in Hong Kong) and margins.

Revenue 12,613 11,912 12,376 12,703 EBITDA 7,315 7,218 7,035 7,253 Valuation: Pre-tax Profit 3,870 3,600 3,259 3,303 Downgrade to HOLD with lower TP of US$0.42. Our TP is Net Profit 1,745 1,714 1,445 1,465 based on a discounted cash flow valuation framework Net Pft (Pre Ex.) 1,745 1,714 1,445 1,465 Net Pft Gth (Pre-ex) (%) 11.6 (1.8) (15.7) 1.3 (weighted average cost of capital of 7.4% and terminal EPS (US cts.) 2.58 2.54 2.14 2.17 growth rate of 0%). After cutting FY17F DPU forecast to EPS Pre Ex. (US cts.) 2.58 2.54 2.14 2.17 22HKcts, we see the prospective yield of 6.4% as fair. EPS Gth Pre Ex (%) 12 (2) (16) 1 Diluted EPS (US cts.) 2.58 2.54 2.14 2.17 Net DPS (US cts.) 4.43 3.94 2.84 2.84 Key Risks to Our View: BV Per Share (US cts.) 63.0 61.0 60.4 60.0 A global recession would materially impact trade and PE (X) 17.0 17.4 20.6 20.3 throughput numbers for HPHT, which would then have an PE Pre Ex. (X) 17.0 17.4 20.6 20.3 impact on the group’s earnings and cash flows, and ultimately P/Cash Flow (X) 6.0 5.8 6.7 5.4 dividend payout. EV/EBITDA (X) 10.3 10.5 10.8 10.3 Net Div Yield (%) 10.1 9.0 6.4 6.4 At A Glance P/Book Value (X) 0.7 0.7 0.7 0.7 Issued Capital (m shrs) 8,711 Net Debt/Equity (X) 0.4 0.4 0.5 0.4 Mkt. Cap (US$m) 3,833 ROAE (%) 4.0 4.1 3.5 3.6 Major Shareholders (%) Earnings Rev (%): (1) (1) Hutchison Ports Hldgs Ltd 27.6 Consensus EPS (US cts.): 2.10 2.13 Other Broker Re