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Hutchison Port Holdings Trust’s Disappointing Start to 2014

Hutchison Port Holdings Trust (SGX: NS8U), or HPHT for short, is the world’s first publicly-traded container port business trust with interests in three river ports and four deep-water ports (the latter’s the important part of HPHT’s business) that are all based in Hong Kong and China; the deep-water ports include the Hongkong International Terminals (HIT), Yantian International Container Terminals (YICT), COSCO-HIT Terminals, and Asia Container Terminals (ACT).

With such unique business interests, HPHT’s also the only business trust that’s part of Singapore’s market barometer, the Straits Times Index  (SGX: ^STI). The trust had announced its first quarter results on the evening of 28 April 2014, so let’s take a look at how it did.

Results for the quarter

After a disappointing 2013, HPHT was able to grow its revenue again for the first quarter of this year. The business trust ended the quarter with revenue of HK$2.94 billion, which is 2.7% higher than last year. However, the throughput of HIT is still facing pressure, decreasing 5.5% year-on-year The volume handled in the Shenzhen, China-based YICT was better as the port experienced an increase of 1.8% in its container throughput.

The business trust ended the quarter with a 21.7% increase in its operating profit to HK$1.021 billion. However, upon closer inspection, HK$243.8 million of its operating profit had come from a one-off net gain from the sale of a 60% stake in ACT. Without that gain, HPHT’s operating profit had actually disappointingly dropped by 7.35% year-on-year to HK$777.8 million. HPHT had sold part of ACT to Cosco Pacific Limited and China Shipping Terminal Development (Hong Kong) Company Limited as the trust had entered into a strategic partnership with the other two companies.

All told, the reported profits of HPHT for the quarter had increased by 47% to HK$559 million.

Moving on to HPHT’s balance sheet, the business trust had managed to improve its net debt position (total debt minus total cash) slightly from HK$27.98 billion in the last quarter of 2013 to HK$26.57 billion currently.

The trust’s outlook

From managements’ view of its markets, they are expecting conditions for trading activity in China to improve. As the USA and Europe are major trade partners of China, when the two Western economies rebound, the outlook for HPHT will then be much brighter. The trust was not able to grow its equity (i.e. total assets minus total liabilities and minority interests), mainly due to the high distributions it has been giving out over the past few years; its unitholder’s equity had dropped from HK$65.17 billion in the last quarter of 2013 to HK$63.75 billion today.

Foolish Summary

The worse might not be over for HPHT as it continues to struggle with rising costs and lower revenue despite still having above-average profit margins. The trust is currently trading at US$0.675 per unit. At that price, it’s selling for 24.6 times trailing earnings and has a price-to-book ratio of 0.72.

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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 Stanley Lim doesn’t own shares in any companies mentioned.