After sharing that Hutchison Port Holding Trust (HPHT) was one of the top 5 contributors to my dividend income in Q1, I received a few queries asking “Why, Why, Why??!!!” The outbursts of concerns were a surprise though not shocking.
First, an intro to HPHT for some of you who may not be familiar with this company. It is a container port business trust. The Trust invests in, develops, operates, and manages deep-water container ports in the Pearl River Delta. HPHT also invests in other types of port assets such as river ports, as well as undertake certain port ancillary services that include warehousing and distribution services.
HPHT has not been receiving good feedback on its performance ever since it was listed in 2011. It IPO-ed at US$ 1.01. Over the years, its share price has only gone one way – down and down. As of today, it is trading at US$ 0.34, almost 65% below its IPO price 7 years ago. It has been eroding shareholder value year after year. The drop in the share price reflected the deteriorating business performance from year to year.
After receiving the concerns expressed by fellow bloggers, I went to have a closer look at HPHT. It represents ~1% of my portfolio by valuation. My average cost price is US$ 0.39 (15% higher than the current share price). I bought most of them a few months ago after their results release in Q4 2017 and bought additional shares when they released their results in Q1 2018 and announced their dividend pay-out of HK$ 0.111 (US$ 0.014).
Let’s work some numbers: assuming that we are pessimistic of the dividend pay-out for Q3 2018, i.e. only assume 2/3 of last year Q3 dividend – HK$ 0.065 (US$0.0083), the overall dividend yield will be 5.7% (at cost) and 6.5% (at current price). It is not too bad but not exciting I must admit. But I may also be too pessimistic here 😉
So, why did I buy it?
- Presumed High Dividend Yield – Based on the 2017 dividend distributions, at the share price that I paid for, it would have provided me with a yield of 8.5%. But that was not to be as their dividend pay-out continues to decline in Q1 this year. Now that I look closer, its dividend pay-out has been declining since it was IPO-ed. OMG!
- Good Feedback from Analysts – I remembered reading the analyst’s reports about HPH Trust after they released their results and gathered a rather “feel good” sentiments that things were going to get better for HPH Trust. It is coming on the back of a recovering global economy (esp. USA, Europe) and even China continues to be growing steadily. They have a majority market share of the port activities at the Pearl River Delta. Earning is expected to grow starting from next year.
- Strong Shareholders – Cheung Kong Holding holds about 30% of the company shares while guess what our very own Temasek Holding holds about 11% share. These 2 largest shareholders have been around since 2011 when HPHT was first listed until now. I feel that they must have seen something in HPHT to continue to hold it for so long. Nobody in this world will like to lose money. But by keeping the same stake in HPHT, our Temasek Holding had lost US$ 500 Mil from 2011 to now. HPHT’s Market Cap is US$ 2.96 Bln currently. It was a US$ 8.8 Bln company when it was first listed.
- The Share Price is significantly below the Book Value – Its book value per share is around US$ 0.60, so at the current share price, it is trading at ~ 45% discount.
- It has not missed a single dividend pay-out, it still generates a positive income and it has not conducted any rights issue to ask money from shareholders.
I hope the analysts are correct that HPHT performance is going to turn the corner in the coming years although its historical track record has not been encouraging. At this dividend yield, I will probably hold on to it, monitor its business performance and be alert to any actions from its major shareholders. I probably won’t add more unless its share price drops significantly for no reason.
Perhaps Cheung Kong Holding will buy us out one day at US$ 0.60 – that will be a real great bonus!
Do have a great weekend.