Tuesday, November 12, 2013

HPHT is nearing my re-entry price target



I used to own HPHT, I sold it off after the Q2 results.

I thought I will have to hold on to it through the thick and thin, but I was surprised that several brokerage firms actually give a buy call after the results. I managed to collect 1 full year of dividends and managed to exit with a small profit.

I was very puzzled about the research reports then, as far as I can see, no one mentioned about:

1) The capex that has been postphoned, that should happen this year, my conservative estimate will be 1.5 billion in developing Yantian.

2) They mention the weaker results are due to the strikes at HK ports, but most ships are directed to Yantian, so the impact on HPHT should be rather muted, and the strikes should not be used an reason, but it does provide a convenient excuse.

3) The eroding net margins

One brokerage company correctly pointed out that HPHT will face labour costs increase due to the renegotiation of salary after the strikes at the ports.

I realized at prices then, we are just looking at about 6% yield, and hence there is no margin of safety. I also have better alternatives then, so I sold out and bought Sabana Reit, which didn't turn out too well either, but there is no loss of capital from HPHT or sabana.

After doing some quick calculations, assume operations do not worsen drastically, and factoring labor costs  increases, HPHT should yield 7.5% at 80 SGD cents, I would think that would be a good price to pay for HPHT. But I might take the plunge from 80 cents to 84 cents. Some 5 cents away from my target, will it get there? I do not think the assets will go to the dogs and should recover with the economies of US and Europe, 80 cents should provide some margin of safety and potential of upsides.

Well, I am not in a hurry.

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