7 things I learned from the 2020 Hutchison Port Holdings Trust AGM

7 things I learned from the 2020 Hutchison Port Holdings Trust AGM

Hutchison Port Holdings Trust (HPHT) operates in the container port industry, with its terminals located in two of the world’s busiest container port cities by throughput: Kwai Tsing, Hong Kong; and Yantian Port, Shenzhen, China.

HPHT’s market performance has been disappointing – since its IPO in 2011, it has lost close to 90% of its market value. It was also announced in September 2019 that HPHT will be removed from the Straits Times Index partly due to poor operating income since 2016 as it faces challenging business conditions like the U.S.-China trade tensions.

Compounded with COVID-19 troubles in 2020, HPHT’s immediate future certainly looks bleak. Nevertheless, I tuned in to HPHT’s virtual AGM to find out how it performed for FY2019 and how it intends to brace for the rough business conditions ahead for them. So here are seven things I learned from Hutchison Port Holdings Trust’s 2020 AGM:

1. HPHT’s 2019 throughput decreased by 3% y-o-y. Yantian Port’s throughput decreased by 1% y-o-y. The decrease in throughput for Yantian was attributed mainly to a decrease in U.S.-bound cargoes, partially offset by an increase in empty and transshipment cargoes.

HPHT’s Hong Kong terminals comprising HIT, COSCO-HIT, and ACT (collectively known as Kwai Tsing Terminals) saw its throughput decrease by 6% y-o-y. The decrease was mainly the result of a decrease in intra-Asia and transshipment cargoes.

Shipping carriers also continue to change shipping routes and call patterns due to ongoing consolidation in the container port sector. This has affected transshipment traffic and volumes at ports, particularly in Hong Kong.

Here’s an overview of HPHT’s throughput volume over the past eight years:

Source: Hutchinson Port Holdings Trust 2020 AGM presentation slides

The grey bars represent the throughput volume of HPHT’s ports in mainland China, while the blue bars represent the throughput volume of HPHT’s ports in Hong Kong. Throughput volume growth has been weak: HPHT’s China and Hong Kong throughput volume have recorded a CAGR of 1.8% and -3.3% over the past five years respectively.

2. Outbound cargoes to the U.S. were weak in 2019, decreasing by 9% y-o-y. The decrease in outbound cargoes enlarged to 19% for Q4 FY19. This was due to the high base volume in 2018 caused by cargo frontloading at the end of 2018 in anticipation of the impending tariff hikes in 2019. The container port industry faces a lot of uncertainty in the face of rising trade protectionism and ongoing trade tensions between major economies, particularly the U.S. and China.

3. In January 2019, HPHT formed the Hong Kong Seaport Alliance with Modern Terminals Limited (MTL), a key competitor. With this, HPHT’s 16 berths in Kwai Tsing and MTL’s seven berths will now operate as one port. This alliance is formed with the aim of improving HPHT’s operational efficiencies and cost savings, and increase its handling capabilities. This alliance was effective as of April 2019 so for the nine months ended 31 December 2019, Kwai Sing ports achieved savings of HK$50 million from the alliance.

4. HPHT’s revenue decreased by 3% y-o-y to HK$11.1 billion, while net profit decreased by 11% y-o-y  (excluding impairment charges in 2018) to HK$1.8 billion. According to CFO Diana Lee, HPHT’s 3% decrease in revenue in 2019 was due to the 3% decrease in its throughput volume in 2019.

The decrease in net profit was mainly due to lower revenue, an increase in interest costs due to higher HIBOR/LIBOR rates, and a tax increase in 2019. This tax increase was due to the expiry of the ‘High and New Technology Enterprise’ status awarded to Yantian Phases I and II.

5. HPHT is looking to ease its debt load. To reduce its gearing, Chairman Canning Fok shared that HPHT implemented a plan in 2017 to repay a minimum of HK$1 billion of debt annually over a five-year period. HPHT reduced its total debt from HK$31,689.5 million as of 31 December 2018 to HK$30.6 billion as of 31 December 2019 with a debt/equity ratio of 0.67. The CFO also shared that HPHT had reduced its CAPEX by 22% (or HK$162 million) in FY2019 amidst the present challenging business conditions in the industry.

6. One of the pre-submitted questions asked how HPHT will be affected by President Trump’s potential revoking of Hong Kong’s separate customs territory status in response to Beijing’s national security law on Hong Kong. The chairman replied that HPHT’s business with America did not consist of a large part of HPHT’s business. Hence, Trump’s potential actions to revoke Hong Kong’s separate customs territory status would have an ‘insignificant’ impact on the business.

7. Another pre-submitted question asked how COVID-19 has impacted HPHT’s business operations and if the resumption of business activities in China over the past several months has lifted HPHT’s business. The chairman replied that HPH Trust was inevitably affected by the pandemic as it is a major transshipment hub in the region. Throughput volume in its Yantian port in the mainland decreased by 16% y-o-y for the first quarter of 2020. This was due to the slowdown of business activities in the U.S. and Europe, which Yantian has businesses with.

The chairman added that whether HPHT’s business picks up would depend on how Europe and America economically recover from the pandemic. As manufacturing in China has mostly resumed with loosened lockdown and border controls, it is expected that the negative impact of COVID-19 on HPHT’s volume will gradually be reduced.

Liked our analysis of this AGM? Click here to view a complete list of AGMs we’ve attended »

Dean has written and published investment articles since he was 18. Investing primarily in the U.S. and Chinese equity markets, he bases his investing decisions on good old Buffett-inspired fundamental analysis. He will be studying Philosophy and Economics at the London School of Economics.

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