HPHT acquires ACT for $408m but impact too early to judge

Better to wait for more deal details.

Maybank Kim Eng said that Hutchison Port Holdings Trust's (HPHT) recent acquisition of Asia Container Terminals (ACT) for $408m is sparing in its details and that despite HPHT expecting the deal to be DPU-accretive, the research firm chose to retain its forecasts and adjust them only when more information such as financing terms and cashflow data are released.

Here's more from Maybank Kim Eng:

Light on details, but a positive. Hutchison Port Holdings Trust (HPHT) announced the acquisition of the entire stake in Asia Container Terminals (ACT) for a total cash consideration of HKD3,167m (USD408m) from DP World (55%) and PSA (45%). HPHT also procured the payment of HKD750m (USD97m) in ACT’s loans owed to DPW and PSA’s affiliates. All these would be financed entirely from a term loan facility agreement. We view this acquisition positively for three reasons: 1) it alleviates capacity constraints to growth in HK for HPHT, 2) HPHT expects the acquisition to be accretive to DPU, and 3) ACT is already an ‘overflow’ port for HPHT, and is hence tried and tested.

Look to cashflow instead of NTA. ACT’s NTA as of 31 Dec 2012 was HKD625m (USD81m). This implies a ~5x multiple of the acquisition price over NTA and looks demanding at first glance. However we believe this should not be used as a benchmark of value to HPHT despite the scant details revealed in the announcement. We instead prefer looking at the ACT acquisition from a discounted cashflow point of view, which, together with the above-mentioned financing rates were not disclosed in the announcement. Free cashflow is the pivotal metric to the investment thesis of HPHT being a strong yield play. For this, we take comfort from HPHT’s expectations of DPU accretion from this deal. 

2 more berths at HK. Figures 1 and 2 summarise the key geographical details and available facilities for ACT, which feature 2 berths of 15.5m depth, and with lease expiry in 2047 (34 years’ time, similar to rest of HPHT berths).

Reiterate BUY as strong yield play. HPHT remains a strong yield play in our view, with distribution yields of 7-8% p.a. without including the ACT acquisition. We prefer to maintain our forecasts and adjust them once more details such as financing terms and ACT cashflow are made available – any DPU accretion remains as upside for now. HPHT remains a BUY, TP unchanged at USD0.93.