Hutchison Port Holdings Trust’s Latest Earnings: What Investors Should Know

Hutchison Port Holdings Trust (SGX: NS8U) released its fiscal fourth-quarter earnings report yesterday evening. The reporting period was from 1 October 2015 to 31 December 2015.

The business trust is one of the 30 components of the Straits Times Index (SGX: ^STI). It currently has stakes in four deep-water container ports in Hong Kong and Shenzhen. The container ports include Hongkong International Terminals (HIT), COSCO-HIT Terminals (CHT), and Asia Container Terminals (ACT) in Hong Kong as well as Yantian International Container Terminals (YICT) in Shenzhen, China.

You can learn more about the business trust in here and here.

Financial highlights

The following’s a quick summary of Hutchison Port Holdings’ latest financial figures:

  1. Revenue for the fourth quarter was HK$3.03 billion, a 4.9% decline compared to the same quarter last year. For 2015, revenue for the business trust came in at HK$12.6 billion, a slight 0.1% decline from 2014.
  2. For the reporting quarter, profit attributable to unitholders was HK$533.3 million, a turnaround from the HK$18.6 billion loss recorded in last year’s comparable quarter (the quarter had included a HK$19 billion goodwill impairment). For the full year, profit attributable to unitholders was HK$1.74 billion.
  3. Consequently, earnings per unit (EPU) for the fourth quarter came in at 6.12 HK cents. For 2015, EPU was 20.03 HK cents.
  4. Cash flow from operations was HK$1.34 billion million for the fourth quarter with capital expenditures clocking in at HK$325 million. This gave the port operator HK$1 billion in positive free cash flow, which was down from the free cash flow of HK$1.39 billion (HK$1.65 billion in cash flow from operations and HK$265 million in capex) a year ago. For the whole of 2015, Hutchison Port Holdings Trust had HK$2.94 billion in free cash flow; this is a big decline from the number of HK$4.29 billion seen in 2014.
  5. As of 31 December 2015, Hutchison Port Holdings Trust had HK$6.84 billion in cash and equivalents and borrowings of HK$33.0 billion. The trust had a slightly stronger balance sheet at end-2014 when it had HK$7.80 billion in cash and equivalents and total debt of HK$33.7 billion.

In all, Hutchinson Port Holdings Trust had a rather lackluster year with its top-line stalling. The business trust had recommended a distribution per unit of 18.70 HK cents for the second-half of 2015, bringing its distribution for the full year to 34.4 HK cents. In 2014, the selfsame figures were 22.30 HK cents and 41.0 HK cents, respectively.

Operational highlights and outlook

For the fourth quarter of 2015, Hutchison Port Holdings Trust had divested its stake in Zhuhai International Container Terminals (Jiuzhou) Limited. The business trust gained approximately HK$347.2 million from the sale and recognised a gain of approximately HK$155.5 million in the reporting quarter.

For the full year, around 60% of the trust’s revenue came from China while the rest originated from Hong Kong. In the earnings release, the business trust’s manager had summed up its outlook with the following commentary:

“The volume of containers handled by HPH Trust is affected materially by the economic performance of the US and Europe.”

Outbound cargoes to the US were flat in the fourth quarter of 2015. High inventory level affected shipments in the quarter. The US Federal Reserve raised interest rates for the first time in nearly a decade in December 2015, in response to the strengthening US economy. We anticipate a stable US economic outlook for 2016 and a mild increase in US outbound cargoes.

The European economies continued to be weak in 2015 which resulted in a fall in outbound cargoes compared with 2014. Management does not anticipate a material improvement in 2016.”

The manager also added that Hutchison Port Holdings Trust’s performance would be affected as well by structural changes happening in the container shipping industry.

Container shipping firms have been adding mega-vessels, forming alliances, and broadening vessel-sharing schemes, all in a bid to improve their business conditions. Hutchison Port Holdings Trust thinks that it is well-positioned to take advantage from these trends given its natural deep-water channels and “unparalleled mega-vessel handling capabilities.”

As for cargo volume, the business trust’s manager “remains cautious” given the soft global trade outlook.

Foolish summary

Hutchison Port Holdings Trust last traded at US$0.47 per unit yesterday. At the level, it offers a trailing distribution yield of 9.4%.

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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 Chin Hui Leong doesn’t own shares in any companies mentioned.