Broker's take: OCBC Investment Research sees HPHT selldown as overblown

OCBC Investment Research on Thursday said there was still room to go after the short rally on Hutchison Port Holdings Trust (HPHT) this week. 

On top of overall US-China trade tensions, the announcement of a 30 per cent cut in the "list price" for Shenzhen ports has hurt the trading price of HPHT since earlier this year. China's National Development and Reform Commission (NDRC) in February announced a reduction in the benchmark container handling tariff for import and export containers at ports in Dalian, Guangzhou, Yantian and West Shenzhen.

A Moody's report in February said that the tariff adjustments have been prompted by the Chinese government's "anti-monopolistic approach to the business operations of coastal ports". The report added that the aim is to cut overall logistics costs and promote a fairer operating environment for shipping companies.

Still, OCBC noted that HPHT's port Yantian is already charging below the new list price and believe that latest results suggest fears have been overblown. The brokerage added that the list of goods targeted in the proposed US tariffs on US$50 billion of Chinese goods make up less than 2 per cent of HPHT's throughput.

"Furthermore, we believe it would be unrealistic to assume that this throughput related to these goods would cease completely as a result of tariffs," it added.

To be sure, OCBC noted that "government-related actions remain highly unpredictable and volatile".

"We note that it is possible for the NDRC to come back with more cost reduction measures within the logistics industry including ports, and for a worsening in the US-China trade situation," it said.

The brokerage has lowered its fair value target on the stock from US$0.43 to US$0.375, reflecting a higher cost of equity. But it has kept its "buy" call on the counter, noting that the current trading levels represent a distribution yield of more than 8 per cent for HPHT's fiscal 2018.

Units of HPHT were trading unchanged at US$0.305 as at 10.50am.