HPH Trust

HPH Trust: Goldman Sachs initiates at Buy with US$1.16 target.
Forecasts 10% revenue CAGR and EBITDA CAGR for HPHT in 2010-14E, supported by 7% port volume and 1-3% tariff increases each year. Sees growth potential in its portfolio ports from,
i) pricing power on trade recovery and limited new supply in the Pearl River Delta region;
ii) gradual expansion of the catchment area outside Guangdong; and
iii) accelerated intra-Asia trade, driving port volumes and tariff increases…

Notes HPHT’s 100% payout policy will allow it to offer a regular and growing dividend stream. Believes HPHT is attractively valued, offering 6.4% 2011E DPU yield vs 5-6% for high-yield HK/SG stocks. Notes HPHT’s 6.6% operating cash flow yield is also above 4.9% for China Merchants, the closest port comparison. Adds, should HPHT be able to renew its concession rights with no significant change in terms, the DCF value of HPHT to perpetuity would rise to US$1.41/sh…

Key risks are
i) Higher interest rate – every 1% rise would cut 2011E DPU by 5%;
ii) distribution payout constrained by “trapped cash” issue from 2016;
iii) macro downturn – 1% change in port volume would cut DPU by 1.2%.