20140416-渣打银行-COSCO_Pacific_Potential_Qingdao_Port_IPO_could_crystallise_value_12页_849kb

China | Industrial Transportation Summary

Core Content

This document provides an analysis of COSCO Pacific (CP), focusing on its potential Qingdao Port IPO and the broader implications for its valuation and operations. It outlines the company's strategic acquisitions, financial performance, and the impact of the port sector developments on its business.

Main Points

1. Valuation Analysis

• Current Valuation: CP's valuation at 11x 2014E PER is considered compelling.
• Valuation Metrics:
  • Forward PER and PBR are lower than 1SD below the five-year average.
  • Five-year average PER is 12.3x.
  • Five-year average PBR is 1.1x.
  • Five-year average dividend yield is 4.5%.
• Price Target: HKD 12.50 (down from HKD 13.00).
• Discount for SOTP: HKD 12.50.

2. Strategic Acquisitions

• ACT Acquisition: CP acquired a 40% stake in Asia Container Terminal (ACT) for USD 212mn in 1Q14.
  • Previously, ACT sourced cargo from HPHT at low prices, which skewed earnings downward.
  • CP aims to improve ACT's EBITDA margin to match COSCO-HIT Terminals.
• Joint Ventures with Qingdao Port Group:
  • Qingdao Qianwan Container Terminal (QQCT): 20% owned by CP.
  • Dongjiakou Iron Ore Terminal (DJK Terminal): 25% owned by CP.
  • A potential Qingdao Port Group IPO in 2Q14 could crystallize the value of CP’s stakes in these JVs.

3. Qingdao Port Overview

• Positioning: Qingdao Port is the largest container port in Northern China and one of the largest iron ore ports.
• Port Areas:
  • Qianwan Port Area: Handles 80% of Qingdao Port’s throughput, with 21 container berths.
  • Dongjiakou Port Area (DJK Port Area): New development aimed at doubling Qingdao Port's capacity.
    • Designed capacity: 370mt.
    • Current operational capacity: 220mt.
    • Located 80km from Qianwan, with 112 berths.
  • Qingdao Old Port Area: Being redeveloped for cruise terminals.
  • Huangdao Oil Port Area: Handles 40% of crude oil in Qingdao, with plans to move to DJK Port Area post-2013 accident.

4. Financial Performance (2013–2016E)

Metric	2013	2014E	2015E	2016E
Sales (USD mn)	799	920	1,017	1,110
EBITDA (USD mn)	429	476	560	620
EBIT (USD mn)	239	272	320	368
Pre-tax profit (USD mn)	751	386	443	509
Net profit (USD mn)	703	352	399	459
Net profit adj. (USD mn)	309	353	400	460
EPS (USD)	0.11	0.12	0.14	0.16
EPS adj. (USD)	0.11	0.13	0.14	0.16
DPS (USD)	0.10	0.05	0.06	0.07
Net gearing (%)	16.7	34.9	34.7	34.2
ROE (%)	16.5	7.6	8.2	8.9
ROCE (%)	3.7	4.0	4.5	5.0
EV/sales (x)	9.4	8.1	7.5	7.1
EV/EBITDA (x)	17.5	15.7	13.7	12.7
PBR (x)	0.8	0.8	0.8	0.7
PER adj. (x)	13.2	10.9	9.6	8.3
Dividend yield (%)	6.9	3.7	4.2	4.8

5. Key Financial Projections

• Leasing Yields: Expected to recover to 10% in 2014 from 9.3% in 2013.
• Fleet Expansion: CP's container purchase plan is expected to boost revenue by 12% in 2014.
• Net Profit Adjusted: Expected to grow by 14.1% in 2014E, 13.5% in 2015E, and 14.8% in 2016E.
• EBITDA Margin: Expected to decline slightly in 2014E to 51.7% from 53.7% in 2013, but increase in subsequent years.

6. Impact of Qingdao Port IPO

• Potential Catalyst: The IPO of Qingdao Port Group in 2Q14 could increase the value of CP's stakes in QQCT and DJK Terminal.
• Crystallization of Value: The IPO might lead to partial valuation uplift for CP’s holdings, thereby acting as a share price catalyst.

Key Information

CP's Joint Ventures

• QQCT: 4-party joint venture (CP: 20%, Dubai World: 29%, Maersk: 20%, Qingdao Port Group: 31%).
• DJK Terminal: Joint venture with CP (25%), CMH (25%), Qingdao Port Group (30%), and IMC Group (20%).

Market Cap and Share Price

• Market Cap: HKD 28,690mn (USD 3,700mn).
• 12-Month Range: HKD 9.27 - 12.44.
• Share Price as of 15 Apr 2014: HKD 10.58.
• Price Target: HKD 12.50.

Outlook and Recommendations

• Outlook: Leasing yields and port throughput are expected to improve.
• Recommendation: OUTPERFORM (unchanged).
• Investment Horizon: 12 months for price targets.

Conclusion

The report highlights that CP's valuation is attractive, particularly with the potential for a Qingdao Port IPO to crystallize the value of its joint ventures. While global trade recovery is slower than expected, the company's strategic focus on container leasing and port operations positions it well for growth. The IPO is viewed as a key catalyst, and the financial metrics suggest a long-term positive outlook.