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Profit Dips At Hutchinson Port Holdings

hutchison port holdings logo Hutchison Port Holdings (SGX: NS8U) released its 2nd quarter results on yesterday after the market closed. The container port business-trust reported a slight drop of 3% in quarterly revenue from HK$3.03b to HK$3.11b, while profits fell  15% from HK$878.3m a year ago to HK$749.3m.

Hutchison Port Holdings (HPH for short) is the market leader for the container terminal operations in two of the world’s four ports – Hong Kong and Shenzhen, accounting for over 50% of the combined TEU in year 2011. “TEU” stands for “Twenty-foot Equivalent” and is used as a measure for the capacity in cargo transportation.

HPH recently made the news headlines when workers went on a 2 week strike, demanding higher salaries and better working conditions. Port operations and shipping schedules were fully restored on 14 May 2013 after the employees accepted a wage increase proposal put forth by the external contractors. Nevertheless, this incident does not have a major impact on its financials as the traffic was diverted to another port in Shenzhen, also 46% owned by HPH.

Throughput volume of the containers was down 2% compared to the same period in 2012 due to the weaker demand from the US and European cargoes. Even though revenue turned out almost flat,  profits were down due to an increase in various operating expenses such as staff costs and interest charges.

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. As of 30 June 2013, CACHE’s NAV stands at S$0.96 after adjusting for distribution payout to unit-holders.

Although HPH operates in a relatively stable business model, the distribution payouts from HPH have been far from stable. The distribution per unit plunged 22.4% from $24.05 HK cents to $18.70 HK cents for the same period compared to the previous interim year 2012. Based on the closing price of US$ 0.735, the trust has an estimated distribution yield of 5.44% on an annualized basis (distribution for the second half of the year is usually higher).

Outlook

With regards to the trust’s outlook, HPH Trust has commented that its business volumes are largely influenced by the health of the European and North American economies. HPH Trust sees stronger US economic recovery while the Eurozone is expected to remain soft. On the other hand, the spotlight should be cast on emerging countries as they are becoming more important in driving global growth and indirectly, contributing to more transshipment for HPH.

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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 James Yeo doesn’t own shares in any companies mentioned.