Hutchison Port Holdings Trust’s Latest Earnings: Will It Ever See a Brighter Future?

Hutchison Port Holdings Trust  (SGX: NS8U) announced its fiscal first-quarter earnings yesterday evening. The reporting period was for the three months ended 31 March 2015.

As a quick introduction, Hutchison Port Holdings Trust is the largest business trust listed in Singapore and it owns and operates sea ports in Hong Kong and mainland China.

Financial highlights

For the quarter, Hutchison Port Holdings Trust saw its revenue inch up by 0.1% year over year to HK$2.95 billion.

Despite the steady top-line, the trust’s bottom-line was badly dinged as profit fell some 49% from a year ago to HK$285.8 million. The main culprit for the profit decline was the presence of a one-off gain of HK$243.8 million in the first quarter of 2014 when the trust sold a 60% stake in Asia Container Terminals.

On the balance sheet front, Hutchison Port Holdings Trust saw its net debt (total debt minus total cash) to equity ratio weaken slightly from 40.8% as at end-2014 to 43.5% as at 31 March 2015. It’s unlikely that unitholders will see a big improvement in the ratio as the trust has the tendency to distribute most of its cash flow to unitholders.

Business highlights and future outlook

During the quarter, the throughput of Hutchison Port Holdings Trust’s deep-water ports had grown 4% year over year. A standout performer was the Yantian International Container Terminals, which saw its throughput increase by 10% on the back of growth in US, transshipment, and empty cargoes.

The trust is very much dependent on the US and Europe. If growth in those two regions can fire up again, it can help increase the total volume handled by the trust’s ports.

On that note, the trust thinks that “the fundamentals of US economy remain strong and it is expected that the economic activities will be picking up in the second quarter of 2015.” The trust isn’t as optimistic about Europe however, as the continent is still suffering from a high unemployment rate and a soft consumer sentiment.

Foolish Summary

Hutchison Port Holdings Trust’s business performance is very much tethered to the economies of both the US and Europe. Without sustained growth in those two parts of the world, the trust might not be able to see much improvement in its business.

Given the possibility of rising interest rates, a heavily leveraged balance sheet, and a policy of distributing much of its cash flow, Hutchison Port Holdings Trust’s business performance may worsen if global economic growth does not improve.

At Hutchison Port Holdings Trust’s current share price of US$0.675, it is trading at 1.05 times its book value and offers a dividend yield of 7.7% (based on its annual dividend in 2014).

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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 writer Stanley Lim does not own shares in any companies mentioned above.