Is Hutchison Port Holdings Trust In A Structural Decline?

Hutchison Port Holdings Trust (SGX: NS8U) has been one of the worst performers within the Straits Times Index (SGX: ^STI) over the past five years. In that time frame, its unit price has fallen by 50%. In fact, since its initial public offering back in 2011, its unit price has fallen by more than 60%.

According to its website, Hutchison Port Holdings Trust is the “market leader in the world’s largest trading hub.”

The business trust currently has stakes in four deep-water container ports in Hong Kong and Shenzhen, China. The container ports include Hongkong International Terminals (HIT), COSCO-HIT Terminals (CHT), and Asia Container Terminals (ACT) in Hong Kong, and Yantian International Container Terminals (YICT) in Shenzhen.

In its latest quarter, the trust produced a weaker financial performance compared to both a year ago and sequentially. Is Hutchison Port Holdings Trust experiencing a cyclical or structural decline in its ports?

According to a recent news report from South China Morning Post, ports in Hong Kong might be under serious threat. Container throughput has dropped significantly since 2015.

Hong Kong has long been one of the key ports to benefit from trading activity happening between the west and China. However, since the opening up of mainland China – such as through the establishment of the Shanghai Free Trade Area – the relevance of Hong Kong’s ports is being challenged.

In fact, Hong Kong used to contribute the lion’s share of the container throughput in the Pearl River Delta area. In 2001, Hong Kong’s share was 77.8% – that has since dropped to just 45.3% in 2015. Hong Kong also held the title of the busiest port in the world from 1992 to 2004, before it was replaced by Singapore. The Garden City itself was stripped of the title in 2011 when it was overtaken by Shanghai.

What all these mean is that the days of Hong Kong being the gateway to China may be over. The ports in Hong Kong, and to a greater extent, Hong Kong itself, may need to rethink their relevance in a new world order. Hutchison Port Holdings Trust would need to take part in that rethinking process given the nature of its business.

Currently, Hutchison Port Holdings Trust is trading at 15.4 times trailing earnings and 2.2 times tangible book value, and offers a 10.2% distribution yield.

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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.