Still on Hutchinson Port Holding Trust … Based on my analysis, I concluded that at current price of US$ 0.34, HPH Trust is fully valued. A share price of US$ 0.305 will offer us a potential entry point with safety margin.
Below is my full analysis leading to my conclusions. I am open to your critique and comments.
(By the way, this blog post is created to share my thoughts and invite comments to sharpen it further. It has no intention to encourage anyone to buy, sell or hold HPH Trust now or in the future)
Before I start, I realised that I made a mistake on the computation of the dividend for HPHT financial year in the previous post. I have taken the 2 dividends payouts (Feb & July) in a particular year as the dividends for that year. But because the financial year of HPHT ends on 31 Dec, so the dividends for financial year 2017 should be the July 2017 and Feb 2018 instead. I realised this mistake when I was preparing for this blog post. I cross-checked the dividends with some analysts’ reports and discovered the mistake. My apology.
I traced back HPHT performance since its IPO in 2011 till today, the dividend it paid for each year and the resultant dividend yield. This is what I got:
|Highest Share Price||0.84||0.85||0.75||0.72||0.52||0.47|
|Lowest Share Price||0.64||0.62||0.62||0.53||0.42||0.38|
|Average of 2||0.74||0.735||0.685||0.625||0.47||0.425|
|Dividend Yield %|
|Lowest in Year||7.87%||6.22%||7.05%||6.16%||7.59%||5.62%|
|Highest in Year||10.33%||8.53%||8.53%||8.37%||9.39%||6.95%|
A few noteworthy observations:
- Dividend/Share has declined year-on-year from 2012-2017. 2017 dividend was only 40% of what it was in 2012. The decline in DPS was the sharpest between 2016 and 2017. It dropped by a jaw dropping 33%. The average decline over the years has been 16% per year.
- Not surprisingly, share price decline year-on-year as well for the highest and lowest share price for the year and the average of these 2. The latter has been declining by an average of 10% each year.
- The average yield has been on the decline as well – mirroring the higher drop in dividend per share per year compared to the share price. In 2012, people were demanding for a dividend yield of 9.1%. It then moderated to 7+% in the next few years before increasing and to 8.5% in 2016. But in 2017, the average dividend yield was only a surprising 6.28%.
- This low dividend yield expected by investors in 2017 could be a result of
- Heightened investors’ risk appetite in 2017. We also saw the same compression of REITs yields to lowest level in recent years.
- Or it might be a sign that investors are expected a turnaround in the dividend payout in the coming years and therefore, they are willing to accept a lower yield now
- Or it could be due to sharp fall in the Feb 2018 dividend which was a surprise to investors
Personally, I think it was probably more (a) and (c) and less of (b).
The sharp drop in share price after the full financial year results and dividend distribution released in Q1 2018 indicated to me that the most credible reason is (c).
At the close of business day 16/3, HPH Trust’s share price was US$ 0.34 (note different from Yahoo chart) and based on the same dividend payout as in 2017, the dividend yield will have increased to 7.7% which is more in line with previous years’ investors’ expectations.
The average of the annual highest/lowest average dividend yield from 2012-2017 was 7.72%.
Based on this assessment, I think at the current share price of US$ 0.34, HPH Trust is fully valued.
The average of the annual highest dividend yield from 2012-2017 was 8.68%. This could potentially act as a marker for a realistic safety margin.
If we assume dividend per share is the same, i.e. US$ 0.0264, the share price will have to drop to US$ 0.304 to obtain this “safety margin”.
The million-dollar question remains if HPH Trust can reverse the declining dividend per share trend seen over the years. Your guess is as good as mine but it would be interesting to hear management and the board members out on this – I will try to make the AGM for this year, especially since I am now armed with this information and analysis.
Given that I am already vested, I would probably not invest in HPH Trust further unless I see that I can get a comfortable safety margin – maybe US$ 0.305 will be a good re-entry point.
Happy to receive your thoughts on this too.
Have a great investment week ahead.