Hutchison Port Holdings Trust (NS8U) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the conference call of Hutchison Port Holdings Trust interim results announcement for the period ended 30th of June 2026. Now I will hand over to Ivor Chow, CEO of Hutchison Port Holdings Trust. Mr. Chow, please begin.

Thank you. Good afternoon, everybody. Thank you for joining our how results call. And as usual, I will first give review of how I saw the first half we did as well as give some of my thoughts as to what is the likely outcome for the second half as well, and then I'll pass on to our CFO, Ivy Tong to go through the numbers with you and then we'll end with Q&A. Over our first half, I think for the trust wise, I think we did pretty well considering more things, given how the world has been as well as the Ukraine conflict is really concentrate as long as the Iranian conflict. We have actually done well year-on-year as well as kind of our own internal budget as well. Overall, is up against last year over 50%, probably the outperformance has been over the last couple of years, [indiscernible] continues to do quite well. the first half is still collectively on the first year below last year, 5%. But if you kind of look at how we did the first quarter, we were actually down closer to 10%. And so we actually had a positive quarter for Hong Kong. And the first time that we have seen actually growth from Kong over the last 3, 4 years. So Hong Kong seems to start to show sign of stabilizing -- so overall, if you look at from a volume standpoint, from a margin standpoint, I from a profitability standpoint and because we have been able to manage interest costs fairly well. So we did have a decent amount of profit growth. And so we are will be distributing half year interim dividend of HKD 5 per unit, which is the same as what we did during the last year in 2025 as well. And if you kind of look through some of the volume growth in the first half, you would see that for [indiscernible], in particular, U.S. and Europe, trade continues to do quite well. in particularly the U.S. trade in the second quarter because U.S. trade was actually down in first quarter due to the tariff impact. But I think after President Trump and President met in aging, the market felt that he was a resume normalization, the U.S. [indiscernible] relationship. And therefore, a lot of shippers were rushing to support the U.S. cargo particularly April and May and a little bit of timing as well. So you would have seen U.S. freight rates have actually increased quite a bit during that period of time. So we look at that as more footing than obviously, because last year, if some of you remember, the tariff war actually started in the second quarter. So we actually have an unusually low base last year. And hence, the strong quarter that we have seen in the U.S. is just to a lower base last year as well. And we are monitoring the situation whether it would continue into the third quarter. I think third quarter, we're looking okay for the time being, but a lot will depend on the further meetings is planned between Chairman and President Trump in the U.S. that's what the APAC business [indiscernible]. So there will certainly be a little bit of front-loading involved in whether that will continue into the fourth quarter. To depend on how the consumption demand. Obviously, with fuel prices being quite high inflation is obviously quite high in the U.S. and as well as other places. And that may impact consumer sentiment coming into the second half as well. And obviously, with the Fed now looking potentially to increase rates rather than decrease rates than originally anticipated. Interest rate will play a factor not only in the knot also in the fact that we would have about USD 500 million of refinancing to be done likely to be a bond market conditions. But we are looking at quite a step-up in interest costs from the refinancing. And so we do expect pressure on interest costs in the second half as well. But we are continuing our plan to pay down debt, continue paying down the HKD 1 billion that we have committed to every year. and we will do so this year as well. Hopefully, that will offset some of the interest cost increase to unknown rate increase as well. So overall, wow the Iranian or affected fuel prices, which obviously impacted our costs as well, but the volume has grown and we are less affected by the business comparatively. So with Hong Kong shipment picking up a little bit with an export that -- we're still doing relatively well. Looking to see, as I said, a lot of uncertainty relate to some complex we have seen even the sea is now looking to flatter up again, and that may have some impact but due to the regional conflicts around the world, we are seeing a lot of congestions around ports around the world in Singapore, in Shanghai, Ningbo due to [indiscernible]. So there is actually with ships coming online from the shipping lines or a lot of new ships coming on, there is a need for a buffer a port, if you will, to manage some of the poor congestion we have seen around the world. So Hong Kong being a bit unutilized potentially can pick up some of that transshipment volume as well, which we are working very hard on SP1 Hong Kong is embarking on a 5-year plan as part 5-year plan of China, and we're loving very hard with the government to see whether the policies can be provided to support the portfolio as well. So we are working on funds to try to get to comeback into shape. But certainty over consumer demand and the overall supply chain situation, we're not cautious in terms of the second half of. So with that, I pass it on to Ivy to give us a bit of a run through the numbers, and then we'll go into the Q&A.

If I jump on to Slide 9, looking at exports. So the trust the first half of 2026, we had group of around $11 million, a 5% year-on-year increase. In terms of IT and HICT, there's a 10 growth throughput ended up at around HKD 8.5 million. And for [indiscernible]. We had a 5% year-on-year that throughput was around $3.4 million. If you look at the revenue and other income. On the left-hand side bar chart, you'll see that we had a 10% year-on-year growth. So that total revenue and other income reached around HKD 6.2 billion, Mainly, this is due to higher fruit as well as higher storage income. And also for the first half, we also benefited from the R&D appreciation. And if you then look on to the right-hand side in terms of the segment information, what that in the first half of 2026, 83% of our revenue came from operations in Chinese Mainland with the remaining 17% from Hong Kong. The increase in proportion for Chinese Mainland when compared to the first half of 2025 is largely due to the RMB appreciation impact. If we then sort to the total CapEx. You will notice that for the far of June 2026, total CapEx was around HKD 277 million 28% increase year-on-year. This is largely due to the increase in CapEx for Gen10 as they progress with a 2C hygiening program and also what the purchase of 2C to just comment at the increase in the foment of larger container vessels. And moving on then to take a look at our total debt and net debt position, what you see that in the first half is that there's a drop in short-term debt, which is offset by an increase in our long-term debt and this is mainly just due to the recycling of the redemption of the March USD 500 million bond with a new 5-year bank loan facility that was done at March. So that total consolidated debt at the end of June was around HKD 24.2 million and included reflected here is that from our announced in about HKD 1 billion repayment. We've already undertaken HKD 200 million repayment in the first half of this year. The remaining HKD 800 million are expected to take place in the second half of this year. In terms of net attributable debt, it is around HDK 17.2 billion, which is a 4% reduction when compared to the GM position at the end of December 2025. As Ives mentioned, we're currently assessing the refinancing option for the USD 500 million guarantee notes that is due to expire in September with most likely market conditions for meeting with a new bond issuance. Finally, I just go through quickly the half year results, which is on Slide 15. As mentioned before, total revenue was 10% better year-on-year at HKD 6.2 billion. Our total operating expenses recorded to around HKD 3.4 million. And included in that is a disposal gain that we have realized in the first half of 2020 stake of HKD 154 million, which is in relation to the land exploration at [indiscernible]. Operating profit is around HKD 2.8 million, 30% that are -- as we mentioned, we had a 10% saving in interest costs so that interest expenses was around HKD 382 million, largely because average HIBOR for the first half is so up in the same period last year. And also, we benefited from last year's one in the loan repayment. Profit after tax was HKD 1.5 billion, 47% beta with profit after tax attributable to unitholders at HKD 491 million, 85% that are year-on-year. So that's the update for the financial position and the results of HPH Trust.

And we can start off with the Q&A.

[Operator Instructions] Deepak Maurya from HSBC.

Okay. Great. So my first question is about the debt exposure, you mentioned that -- and even in the previous call, in the full year, you mentioned that it's more aligned to the HIBOR now, could you help us understand what proportion of your debt is currently based or price upon HIBOR?

Currently, 37% of our debt under fixed rate. So there remained a viable based borrowings at the cost level.

Okay. So the sensitivity would be more towards the HIBOR now rather than the Fed policy rate. Is that a fair assumption?

Yes.

Okay. Okay. And when you look at the top trends, right, yes, second quarter was an outstanding quarter, but from a very low base. However, in the second half of last year, we had low single-digit growth in Yantian. In that context, is it fair to assume that growth may slow down in the second half from the first half of 10%, but might still be in low to mid-single digits. Is that a reasonable outlook?

I think that would be a fairly reasonable look, given what we are seeing. Obviously, the key thing is, as you know, last year, the USTR 301 in terms of leveraging ports to Chinese mateship that was President from deferred for 1 year. but it is due for an under extension time this year. Whether that will happen or not, may have an impact on what the actual volume growth will be. Again, like I said, if you sign a relationship normalizes in the second half than what you have laid out is definitely more.

Okay. Okay. And with respect to the confidence of your customers, we've seen quite a number of shipping carriers come out and upgrade their guidance for the full year. Of course, it is driven by a strong lead environment. But do you think that guidance upgrade also translates to a better throughput outlook for both operators such as yourselves?

Well, shipping lines are more dependent on a great private is high, mostly because of the complex that we have seen with moves, we now with resi and cable on. So that's more to do with continuization of shipping line. Now whether that actually translate to actually more goods going through the pipeline. We actually more directly correlated with supply and demand and consumption rather than the supply chain smoothness, if I can use that word. So not directly correlated, but like during COVID, if the world is to just and for congestion does happen. Even though the throughput may slow down, Sometimes, we do pick up more on store income that offset some of that loss throughput as well. So it's tough to see. But for us, I think -- if we have every year 3% to 5% throughput growth, I think that's usually the outlook for the global throughput container, if you will.

Okay. And then when we said specifically for Hong Kong, your peer group, the cost per shipping both companies, right? And we are also joint venture partners with you in Costco and ACT. Over there, when I look at the disclosures in throughput for Hong Kong for those 2 particular terminals put together has gone up by about 3% in the first half. However, when I look at your reporting for Hong Kong terminals put together, including the [indiscernible] terminals, then it is a decline of 5%. Could you help us reconcile that? Does this mean that I saw a decline versus group for the joint venture terminals, -- how should we think about this? And you also mentioned that the normalization help us understand better how this plays out.

Okay. Well, Hong Kong operates under the Seaport line, meaning that the COSCO-HIT, ACT, HIT as well as MTL are all run under share utilization, if you will. So we do not actually particularly look at long-term throughput over another. It's kind of like the 128 in Hong Kong, where the 1 to 10 to utilize more and 60 and 70 is less, really depends on our cost structure. Some time, it is -- and common where cost of HCT results are the newer terminal, -- so their cost basis tends to be a bit more efficient. So we tend to actually put more volts there whereas some of the barges, some of the smaller hand at the older facility. So from that point of view, I wouldn't read too much into the relative volume. I would look at Hong Kong as a whole to get the throughput.

Okay. And then do you see any improvement happening? Or is it that we're still seeing declines? I mean we are still seeing a 5% decline this year the first half. So when should we expect this to supply?

As I was saying, First quarter Hong Kong was down minus 10%. If you look at the public throughput figures in the Hong Kong department. And we have actually reduced that decline from minus 10% to minus 5%. So that means the second quarter was actually a positive quarter. As said, we haven't seen that for over the last couple of years. Now does it mean that Hong Kong will now go back to a steady increase over the year. It remains to be seen. But I think with what I said earlier about the port congestion that we're seeing around the region. Tere are signs that shipping loans are looking for at least kind of like a contingent a port and a buffer. And Hong Kong can provide that because of the location and our efficiency, and we are seeing some transhipment going to flow back into Hong Kong. So I think we want to see a couple of more quarters to see whether that is indeed the case. But also, as I said early the Hong Kong Government and is quite focused on trying to help Hong Kong to standards of having all last we have seen for in decline. So we are potentially looking to see some policy support follow from on. So with potentially some of the transshipment coming back with more policies core than it is on the medium and long term, Hong Kong can kind of recover some of the lost volume. So that's something that I'm looking out for. We haven't seen it steadily yet, but I think by the end of the year, we'll see a better sign when Hong Kong is a or not.

Okay. And then a question on the housekeeping [indiscernible] you mentioned the announcement mentioned that the other operating income increased significantly because of a disposal gain of some land expropriation, could you help us quantify how much of this was...

How much of -- the gain them dispose the gain...

And this is something like a nonrecurring item, I would say, right? It's a one-off gain -- correct -- we actually have an announcement on that than appropriation, I think, a couple of [indiscernible].

Yes.

Okay. And last question on Yantian's expansion, any updates which you would like to share at this stage. So our first is the [indiscernible] expansion is still on track to roll out first quarter in 2027. So that will provide much as capacity for antennas well because intends share potentially could again record a record high tras well. So additional capacity will help us grow over the next couple of company layers.

The next question is, Herbert Liu from Goldman Sachs.

Can you hear me now?

Yes.