Hutchison Port Holdings Trust

[Ray168]

I am looking from the EBITDA perspective, and it show that the Trust has sufficient cashflow to pay the dividend.

[karlmarx]

EBITDA measures earnings without including interest, tax, depreciation and amotisation.

In reality, businesses cannot avoid paying for these. Unless it operates in a tax-free environment, and does not utilise any (or much) PPE. It is only possible to avoid interest without taking on debt.

For HPHT, it has about HK$32b of debts. It also pays tax to PRC and HK. It also has to spend to replace ageing cranes and other related PPE.

It is therefore dangerous to use EBITDA to assess a company's earning ability.

Since IPO, HPHT has financed its distributions through income (~50%), depreciation (~25%), and more loans (~25%). On this note, there are a few questions the interested investor may like to know:

a) Were HPHT's assets overvalued in the first place? This may be why they are not replacing them according to its depreciation expense.

b) If HPHT's assets were correctly valued -- and they did take a massive HK$20b impairment on its goodwill some years back -- how long can they go without fully replacing its depreciated assets? Or do they not intend to, given the massive competition they are facing?

c) How much more loans can HPHT take to fund distributions? As interest rates are rising, how much of its income will be eaten by increased interest expenses?

[cyclone]

EBITDA measures earnings less interest, tax, depreciation and amotisation.

Hi karlmarx,

I think there is a typo here. EBITDA should be earnings before interest, tax, depreciation and amortisation. In other words, EBITDA is net income + interest + tax + depreciation and amortisation.

Correct me if I'm wrong.

[karlmarx]

Thanks cyclone. I meant to say that EBITDA excludes those items from the earnings. I have amended my post.

[BlackCat]

Took a quick look at this:
  - 65% of revenue is from mainland China, but I estimate around only 30% profit (netted out for the 50% owned subsidiary).
  - 60% of HK port volume is for transhipment (p4), but this is expected to decrease due to shipping liner consolidation and mega ships.
  - The transhipment market is price competitive, since liners can do it anywhere (Singapore or other China ports).
  - Long term: expect growth in China port, decline in HK.
  - Short term: stock price may have overreacted to trade war fears and Yantian pricing issues. 
 - Land ownership: How long do they own the land for?  Do they make money if its converted to housing?

Might be a cyclical play over the next few years, the market hates China now.  Or a cigar butt (share price over-dropped, even though industry in long-term decline).  But I'm not interested in declining industries, and  won't be adding it to my watchlist.

[karlmarx]

I have 3 categories for companies.

The first are those with very good businesses, which are more likely to grow earnings over the long term. They are your WB type of ideal business that has little competition, high returns, low capital requirement, etc. These companies are usually expensive all the time, except during situations of severe market panic. There isn't a lot of such companies around.

The second are those with average quality businesses, which are more likely to remain stable over the long term. They sell for a range of valuation. Sometimes, due to market events or not-critical-company-specific-events, you can get some of these average but long-lasting businesses for cheap prices. A good number of the companies can be found in this category.

The third are those with poor quality businesses, which are more likely to decline over the long term. They also sell for a range of valuation. The difference between the 2nd and the 3rd is that there is a higher probability of capital loss if you hold the 3rd type over the long term. There are quite a number of companies I place in this category, and HPHT is one of them, for reasons I have elaborated in my earlier posts.

Some may say that poor quality businesses can also be undervalued. And if it turns around, it can be a hugely rewarding investment. If China changes tack on allowing PRC ports to do international transshipment, or if someone else buys out HPHT, then its shareholders will be delighted. But few poor quality businesses actually turn around. Between average and cheap companies, and lousy and cheap companies, why not go for the former? And if there aren't any of the former available, and the market only offers lousy and cheap companies, it doesn't mean you have to buy them.

Wait for the right pitch before swinging.

My 2 cents worth.

[tonylim]

Many just like to follow Temasek , but all end up as losers . Temasek is sitting on paper loss of 4/5 billions .

[karlmarx]

The direct shareholder is actually PSA.

PSA was also a sponsor of HPHT and did not subscribe for HPHT units during the IPO. In April 2006, PSA paid US$4.4b for 20% of HPH. Upon IPO, PSA received 905m units of HPHT valued at US$1 each. As sponsor who sold its 20% stake in HPH to HPHT, PSA also received about US$2.5b cash from the IPO. Which means between April 2006 (when PSA bought the assets), and March 2011 (when PSA partially sold the assets), PSA already lost US$1b (US$4.4b minus US$905m minus US$2.5b), if dividends received from 2006 to 2011 are not included.

https://www.smh.com.au/business/psa-pays...dneza.html

Since IPO, per unit distributions totaled HKD$2.2406. Converted to US$ at present rates, and multiplied by PSA's number of units (905m units), this is about US$285m. Combined with the market value of the 905 units, the sum is US$510m. Including the cash PSA received from IPO, its value of investment went from US$4.4b to US$3b. So far the losses stand at US$1.4b. HPH may have paid some dividends between 2006 and 2011, so this figure could be smaller.

At best, they broke even, or suffered small losses. But its clear that PSA has put its HPH mistake behind it.

PSA recently increased its stake in HPHT to about 12%, which at current market value is about S$360m. As at December 2017, PSA had an equity of S$11b. This means that its PSA stake is now only about 3% of its equity. As PSA continues to grow, and HPHT continues to shrink, the significance of HPHT to PSA decreases.

Lesson for investors: If you want to invest, make sure you have other generators of cash flow that will allow your net worth to keep growing even as your investment(s) blow.

From Temasek's perspective, the mistake of buying HPH looks even smaller. Temasek receives about $8b in dividends a year, and has a portfolio value north of S$300b. This means Temasek would have recouped its HPH losses with just a year of dividends, if it didn't invest in anything else. From the portfolio perspective, the losses of US1.4b is merely 0.6% of its current portfolio.

Lesson for investors: You can follow Temasek and make the kind of mistakes PSA/Temasek did, if the size of the mistake in your portfolio is minuscule.

[Ray168]

The direct shareholder is actually PSA.

PSA was also a sponsor of HPHT and did not subscribe for HPHT units during the IPO. In April 2006, PSA paid US$4.4b for 20% of HPH. Upon IPO, PSA received 905m units of HPHT valued at US$1 each. PSA also received about US$2.5b cash from the IPO.

https://www.smh.com.au/business/psa-pays...dneza.html

Since IPO, per unit distributions totaled HKD$2.2406. Converted to US$ at present rates, and multiplied by PSA's number of units (905m units), this is about US$285m. Combined with the market value of the 905 units, the sum is US$510m. Including the cash PSA received from IPO, its value of investment went from US$4.4b to US$3b. So far the losses stand at US$1.4b. HPH may have paid some dividends between 2006 and 2011, so this figure could be smaller.

At best, they broke even, or suffered small losses. But its clear that PSA has put its HPH mistake behind it.

PSA recently increased its stake in HPHT to about 12%, which at current market value is about S$360m. As at December 2017, PSA had an equity of S$11b. This means that its PSA stake is now only about 3% of its equity. As PSA continues to grow, and HPHT continues to shrink, the significance of HPHT to PSA decreases.

Lesson for investors: If you want to invest, make sure you have other generators of cash flow that will allow your net worth to keep growing even as your investment(s) blow.

From Temasek's perspective, the mistake of buying HPH looks even smaller. Temasek receives about $8b in dividends a year, and has a portfolio value north of S$300b. This means Temasek would have recouped its HPH losses with just a year of dividends, if it didn't invest in anything else. From the portfolio perspective, the losses of US1.4b is merely 0.6% of its current portfolio.

Lesson for investors: You can follow Temasek and make the kind of mistakes PSA/Temasek did, if the size of the mistake in your portfolio is minuscule.

PSA / Temasek share holding as of todate is 1,133,677,000 or 13.01%. Bought @ usd2.55 ~ 3.05

[Retired@52]

The direct shareholder is actually PSA.

PSA was also a sponsor of HPHT and did not subscribe for HPHT units during the IPO. In April 2006, PSA paid US$4.4b for 20% of HPH. Upon IPO, PSA received 905m units of HPHT valued at US$1 each. PSA also received about US$2.5b cash from the IPO.

https://www.smh.com.au/business/psa-pays...dneza.html

Since IPO, per unit distributions totaled HKD$2.2406. Converted to US$ at present rates, and multiplied by PSA's number of units (905m units), this is about US$285m. Combined with the market value of the 905 units, the sum is US$510m. Including the cash PSA received from IPO, its value of investment went from US$4.4b to US$3b. So far the losses stand at US$1.4b. HPH may have paid some dividends between 2006 and 2011, so this figure could be smaller.

At best, they broke even, or suffered small losses. But its clear that PSA has put its HPH mistake behind it.

PSA recently increased its stake in HPHT to about 12%, which at current market value is about S$360m. As at December 2017, PSA had an equity of S$11b. This means that its PSA stake is now only about 3% of its equity. As PSA continues to grow, and HPHT continues to shrink, the significance of HPHT to PSA decreases.

Lesson for investors: If you want to invest, make sure you have other generators of cash flow that will allow your net worth to keep growing even as your investment(s) blow.

From Temasek's perspective, the mistake of buying HPH looks even smaller. Temasek receives about $8b in dividends a year, and has a portfolio value north of S$300b. This means Temasek would have recouped its HPH losses with just a year of dividends, if it didn't invest in anything else. From the portfolio perspective, the losses of US1.4b is merely 0.6% of its current portfolio.

Lesson for investors: You can follow Temasek and make the kind of mistakes PSA/Temasek did, if the size of the mistake in your portfolio is minuscule.

PSA / Temasek share holding as of todate is 1,133,677,000 or 13.01%. Bought @ usd2.55 ~ 3.05

I agree with Karlmarx on these statements:

"Lesson for investors: If you want to invest, make sure you have other generators of cash flow that will allow your net worth to keep growing even as your investment(s) blow."

"From Temasek's perspective, the mistake of buying HPH looks even smaller. Temasek receives about $8b in dividends a year, and has a portfolio value north of S$300b. This means Temasek would have recouped its HPH losses with just a year of dividends, if it didn't invest in anything else. From the portfolio perspective, the losses of US1.4b is merely 0.6% of its current portfolio."

I personally lost a few Hundred Thousand Dollars on S-Chips. Fortunately, I collected a few Hundred Thousand Dollars of Dividends from the S-Reits.