HPHT borrowing from Peter to pay Paul: Citigroup

Stock Name: HPH Trust US$
Company Name: HUTCHISON PORT HOLDINGS TRUST

Research House: Citigroup

Price Call: SELL

Target Price: 0.68

Hutchison Port Holdings Trust is borrowing from Peter to pay Paul, Citigroup says, noting the deferred capex at Yantian is likely to supplement FY12 DPU.

Without the cumulative around HK$680 million ($107.2 million) in deferred pre-funded capex available in FY13, as all of the HK$2.85 billion in prefunded capex originally budgeted for FY11-12 would have been utilised or distributed, the house now estimates FY13 DPU will decline 15% from the FY12 guided level.

“We expect earnings to be impacted by higher taxes (as tax holidays expire) and likely higher interest expense (as management will need to borrow debt to cover the around HK$3.5 billion in future development capex obligations over the next three years to preserve distributable cash flow and DPU). While we do expect mid-single digit year-on-year growth in throughput, the increased transshipment mix may weigh on yields and margins.”

It cuts its target to US$0.68 ($0.83) from US$0.72; it expects DPU yield to decline to 7% from FY12’s 8.5%, with just mid-single-digit EPS growth. Citigroup keeps a Sell call. The stock is up 1.3% at US$0.79.