Sunday, November 17, 2013

HPHT update: Learning from Nick of valuebuddies

Hi all readers,

I made a mistake in my calculation of FCF of HPHT. I hope I didn't cause any loss. Below is my exchange with Nick from Valuebuddies.


[quote='Nick' pid='67279' dateline='1384748216']
Hi Greenrookie,

I was reading your recent post and I don't think the FCF figures are entirely accurate -

[quote]3) Price paid, I am paying for a 7% yield at current price, using the conservative DPU of 36 cents. No brokerage houses IIRC forecast a DPU as low as mine. If they are right, I am happy. [b]To pay this amount, they need to payout about 3.6 billion HKD. 9 months OCF is already about 3.7 billion[/b]. If you annualized it, you should get 4.9 billion. To have a FCF of 3.6 billion is not a tall order, accounting for capex of 1.3 billion in for the whole of 2013 would mean a capex of about 700 million in 4th quarter, not too liberal in my view, given that 9months capex is only 584 million. Even if capex increase to 1 billion, yield will still be above 6.5%. To me, a 6.5% -7% yield is sustainable in current circumstances for years to come, with potential for upside.[/quote]

I do not think it is correct to assume that OCF - Capex = FCF since the Trust have substantial minority interest in the various ports that they own with majority stakes but consolidated fully into the Group financial statements. This means that the more accurate FCF = OCF - Capex - Dividends Paid to Minority Interest.

In 9M 2013, HPH Trust have registered a cash out-flow of HK$1.8 billion to Minority Interest. So the real FCF that can be distributed to unit-holders in 9M 2013 is around HK$1.5 billion. In 2012, no dividends were paid to Minority Interest in 4Q 2012 so I think the dividend paid to MI is fixed for the year. This means that 4Q 2013 FCF needs to be rather substantial to meet your forecast. Another means to meet your target would be to drawdown debt to finance capex.

The same problem occurs in trying to compute HPH Trust EV/ EBITDA. The EBITDA has both HPHT and the Minority Interest EBITDA combined, the debt fully consolidates both entities but the market capitalization only considers the value of HPHT stake. I faced a similar problem with CM Pacific since its largest expressay is only 51% owned - the minority interest needs to be paid its dividend too so I have to adjust the FCF for that. Similar EV/EBITDA cannot be calculated directly - I had to use a reverse EV/EBITDA to see if numbers make sense.

Please correct me if I am wrong. Keep up with the blogging mate !

(Not Vested)

Hi Nick,

Thank you for pointing out my mistake. I will repost your comment on my blog. I admits I don't quite understand how non-controlling interest work even when I google it and investpedia it. Now, I am much clearer.

Hmm.... I will have to reassess my numbers...

Thanks!!! again

To get to my forecast... it means OCF has to be 5.53 billion HKD instead. Or 1.38 billion per quarter. In the case of 2013, 1.83 billion OCF in Q4. Look likes HPHT have to either further postphone capex or draw down loans.

I use a simplistic 0.65:0.35 shares of dividends in my calculation, if Yantian grows and Hong Kong slows, then such ratio again become inaccurate. For the lastest quarter, the ratio is 0.69:0.31.

It seems like I overpaid for it again.. hahah :P

School fees to Mr Market:(

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