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Hutchison Port Holdings: Smooth Seas Ahead?

Hutchison Port Holdings (SGX: NS8U) released its first quarter results on Tuesday evening after the market had closed. The container port business-trust reported a modest 1.1% year-on-year gain in quarterly revenue from HK$2.84b to HK$2.87b. But, profits for the period slid 15.5% from HK$450m a year ago to HK$380m.

For the quarter in Hong Kong, HPH Trust had experienced steady average revenue per TEU (twenty-foot equivalent-unit: used to describe a ship’s cargo carrying capacity) compared to last year but saw a 7.4% decline in container throughput due to “weaker than expected transhipment and EU cargoes”.

On the other hand, its activities in Shenzhen, China had picked up as container throughput increased by 6.3%. But, that was accompanied by a drop in average revenue per TEU due to an increase in value-added taxation in the region. The net result was a 1.1% increase in HPH Trust’s quarterly revenue.

Expenses for the trust in the quarter had increased almost across the board, which resulted in the decline in net profit. The main culprit was the ‘other operating expenses’ category, which grew by 36% to HK$257m. The increase can be partly attributed to acquisition-related charges (from last month’s purchase of Asia Container Terminals), currency-exchange effects from its China operations as well as fees paid to HPH Trust’s manager.

Incidentally, the trust is managed by Hutchison Whampoa Limited, an investment holding company controlled by Hong Kong billionaire Li Ka Shing.

Regarding labour-relations issues, there is a pay-and-working-condition dispute at the trust’s Hong Kong International Terminals (HIT) that started in late March 2013. The dispute has yet to be resolved, but HPH Trust’s Manager does not see any ‘material adverse impact on the performance of HPH Trust’ stemming from any disruptions in HIT’s operations due to the dispute.

Turning to the trust’s outlook, HPH Trust has commented that its business volumes are largely affected by the health of the European and North American economies. HPH Trust does not see any improvements in Europe but can see the USA eking out some growth. The net result of these would be an outperformance from transhipments and trade routes that ply the Far East, Africa, Central and South America and Oceania as compared to the western world.

HPH Trust went on to say that “Shipping lines continue to reduce costs and achieve economies of scale by deploying more mega-vessels, entering into more vessel sharing agreements and consolidating traffic at larger ports.

HPH Trust is anticipated to benefit from these changes with its superior infrastructure, natural deep-water channels, long continuous berths and scale of operations. The acquisition and integration of ACT with HIT and COSCO-HIT will enhance the scale, operational flexibility and efficiency of the Trust’s Kwai Tsing Port facilities.”

Units of HPH Trust closed 0.6% lower at US$0.83 today. At these prices, the trust has a distribution yield of 7.9% based on last year’s full year pay-out.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chong Ser Jing doesn’t own shares in any companies mentioned.