Brokers' take: DBS raises HPH Trust target price to US$0.37

DBS Group Research maintained its "buy" call on Hutchison Port Holdings Trust (HPH Trust) and raised its target price to US$0.37 from US$0.33 on strong FY2021 earnings and a resilient outlook.

In a research note on Thursday (Feb 10), analyst Paul Yong lifted estimates for FY2022 by 25 per cent after HPH Trust reported a net profit growth of 110 per cent year on year to HK$1.75 billion (S$301.7 million), 58 per cent above DBS's forecast.

He noted that higher storage income was the main contributor to the trust's strong performance and expects this to continue into the new financial year.

"While it remains to be seen if the same magnitude of storage income can be recorded in FY2022, we think that this revenue stream will remain significant in FY2022, given the still ongoing port congestions and Covid outbreaks in China and globally," the analyst said.

Yong predicts FY2023 earnings will remain similar to FY2022 on the back of higher container handling rates and lower costs offsetting lower storage income.

HPH Trust's earnings are anticipated to stay "resilient" in the next few years despite short-term volume uncertainty and higher interest rates, the analyst said. He attributes this to the trust's cost management programmes that have helped it to lower its cost base and reduce debt by nearly HK$5 billion in the last 5 years.

According to the analyst, HPH Trust would not be greatly affected by the expected increase in the Federal Reserve's funds rate as 80 per cent of its debt is on fixed rates.

Yong sees more upside to the distribution per unit guidance of 14.5-15.5 Hong Kong cents in FY2022. He believes there is room for a raise in dividends because of the trust's "strong cash flow generation, resilient earnings, and a rapidly improving balance sheet".

This comes after HPH Trust declared a final dividend of 8 Hong Kong cents, which brought full year dividends to 14.5 cents, 0.5 cent higher than DBS's estimate.

With a 7.9 per cent prospective yield, the stock is attractive in Yong's view.

Units of HPH Trust closed flat at US$0.26 on Thursday.