Is Hutchison Port Holdings Trust Looking Like A Yummy Investment Now?

Being the only business trust within the Straits Times Index (SGX: ^STI)Hutchison Port Holdings Trust (SGX: NS8U) has much to prove. But, the trust’s current unit price of US$0.51 is half that of its listing price of US$1.01 back in 2011.

With this big decline in its price over the past five years, is Hutchison Port Holdings Trust looking like a yummy bargain now?

A bargain – yes or no?

Hutchison Port Holdings Trust’s business has not been performing well for investors over the years.

Although the trust’s revenue had grown slightly from HK$11.6 billion in 2010 to HK$12.6 billion in 2014, its operating profit had fallen from HK$5.8 billion to just HK$3.9 billion over the same period. Moreover, due to a huge HK$19.0 billion impairment charge recorded in 2014, Hutchison Port Holdings Trust fell into losses that year.

However, there is another side of the story to Hutchison Port Holdings Trust. Investors often view business trusts as stable cash generating investments. It is also true that many business trusts in Singapore are invested in cash-generative assets such as infrastructure assets or real estate.

In terms of cash generating ability, Hutchison Port Holdings Trust has been very impressive. The trust had produced an average of over HK$5 billion in cash flow from operations from 2010 to 2014. The trust’s distributions have also been well covered by its cash flow from operations in most of the years as you can see in the table below:

Cash flow table for Hutchison Port Holdings Trust
Source: S&P Capital IQ

As an owner and operator of container ports in some of the world’s busiest container port cities, Hutchison Port Holdings Trust’s business can be considered to be stable. Therefore, as long as the trust is able to sustain its business at the current level, its cash flow would likely continue to be strong. With strong cash flow comes the possibility that the trust’s future distributions would not vary too much from previous years.

At its current unit price of US$0.51, Hutchison Port Holdings Trust is offering a distribution yield of 9.8%. That seems attractive to me. But of course, this shouldn’t be taken to be a call to do anything with Hutchison Port Holdings Trust; it’s merely a useful starting point for further research.

Besides, I’ve yet to touch on the risks that may be involved with Hutchison Port Holdings Trust. Do you have any thoughts on such risks? Share what’s on your mind in the comments section below!

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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 doesn’t own shares in any companies mentioned.