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Brokers' take: OCBC downgrades HPH Trust to 'sell'; DBS maintains 'hold'

OCBC Investment Research has downgraded its call on Hutchison Port Holdings Trust (HPH Trust) from "buy" to "sell", on the back of an unexpected HK$12.3 billion (S$2.1 billion) non-cash impairment loss, while DBS Group Research has maintained its "hold" rating on the counter, with a target price of US$0.26.

OCBC's current fair value estimate of US$0.22 represents a 9 per cent downside from the counter's Feb 12 close of US$0.26.

As at 11.38am on Wednesday, units in HPH Trust were trading at US$0.25, down 3.85 per cent, or one US cent.

HPH Trust released its fourth-quarter and full-year results for fiscal 2018 on Tuesday night. Core earnings slipped 22 per cent to HK$738 million mainly due to higher finance costs, with full-year distribution per unit (DPU) falling 17.5 per cent to 17 HK cents.

In a research note released on Wednesday, DBS noted that the trust's non-cash impairment charges reflected an "uncertain outlook" and other structural changes within the shipping industry.

Similarly, OCBC pointed out that HPH Trust's FY18 results included a HK$12.3 billion impairment loss, which was largely a goodwill impairment that it had not expected. Otherwise, profit after tax and minority interests came in within expectations, OCBC said.

"The non-cash impairment reduces NAV (net asset value) per unit by 31 per cent quarter on quarter to HK$3.07 or about US$0.39, which in turn means HPH Trust is trading at a historical P/B (price-to-book ratio) of 0.66x, using Feb 12's closing price.

"While this figure is still below the five-year average of 0.73 times, we no longer find HPH Trust’s price levels attractive, given the macro uncertainties," said OCBC analyst Deborah Ong.

Separately, DBS noted that HPH Trust's cautious DPU guidance also highlights uncertainty posed by the US-China trade situation.

"Citing the uncertainty over its throughput outlook due to the ongoing US-China trade war situation, and depending on how interest rates move, the company provided a wide DPU guidance range for FY19 of between 11 HK cents and 17 HK cents," DBS said.

Therefore, DBS is cutting its FY19 DPU forecast for the trust to 15 HK cents, which is within the management's guidance.

DBS analyst Paul Yong added: "Despite a decent prospective yield of 7.4 per cent on offer, we remain neutral on HPH Trust as it remains vulnerable to the on-going trade dispute between the US and China, as its key port assets in Shenzhen and Hong Kong are heavily exposed to China's export sector.

"The relatively high gearing level of the trust also means that higher interest rates would hurt its earnings and cash flows."

That said, he noted that the trust's share price could rerate if throughput volumes can drive better-than-expected revenues and cash flows in the quarters ahead.