1、Asia Pacific Equity Research 25 August 2010 COSCO Pacific Overweight 1199.HK, 1199 HK Takeaways from the analyst briefing and JPM Live call reaffirm our positive view; maintain OW Price: HK$10.32 Price Target: HK$15.30 Hong Kong Infrastructure Karen Li, CFAAC (852) 2800-8589 J.P. Morgan Securities
2、(Asia Pacific) Limited 81114HK$Aug-09 Nov-09 Feb-10 May-10 Aug-10Price Performance1199.HK share price (HK$R-CHIP (rebased)YTD 1m 3m 12mAbs 1.4% -1.0% 11.6% -21.8%Rel 3.7% 0.0% 3.8% -19.7%See page 14 for analyst certification and important disclosures, including non-US analyst disclosures. J.P. Morga
3、n does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investm
4、ent decision. We summarize below our key takeaways from the analyst briefing held by the company as well as the JPM Live Call hosted by us. Container terminal segmentAt the inflection point, although 1H10 numbers may not be telling: Overall improving financial performance was rather notable, with tw
5、o key highlights: 1) number of loss-making ports decreased to four out of a total of 24 (vs. seven in 1H09. 2) Two of the remaining four loss-making ports in 1H10 are expected turn profitable within 3-6 months, including Guangzhou Nansha and Piraeus. 3) Capex peaking in 2010E, FCF to turn positive i
6、n 2011E. We estimate the earnings contribution from Yantian at US$40MM in 2H10 and US$60MM in FY11 (vs. nil in 1H10) driven by the following two factors: 1) Benefit from the incremental stakes in Yantian will start only in 2H10; 2) Yantians dividend, inclusive of interim dividend, will be paid out b
7、y 3Q10. Piraeus port to turn profitable by around end-2010: At the briefing, management delivered positive turnaround guidance, expecting the Piraeus port to turn around on a monthly basis before end-2010, driven by: 1) winning of traffic from MSC; and 2) installation of three crane machines with hi
8、gher operational efficiency in Sept-10: management guided for a break-even monthly volume of 6065K TEUs, along with a steady trade mix similar to the current ratio. Guangzhou Nansha port halved the loss in 1H10, to reach break-even around year-end: In addition to continued volume ramp-up, three posi
9、tive drivers: 1) potential tariff increases; 2) decreasing financial leverage; 3) declining operating costs with recently secured govnt grants for dredging. Container leasing segment-Benefit from higher leasing rates mostly in 2H10: The ARPEC rate has reached c15%, up from 13-14% in 1H10, although m
10、ost benefit will kick in from 3Q10 due to the delivery schedule. Maintain OW: We maintain our estimates and keep our Dec-10 SOTP-based PT at HK$15.3. Key risks to our PT are tariff cuts, weaker-than-expected volume growth, and execution risk with new port investments. Reuters: 1199.HK; Bloomberg: 11
11、99 HK US$ MM, YE Dec. FY09A FY10E FY11E FY12E Net Revenue 349 463 485 497 Current stock price (HK$) 9.10 Core Net Profit 149 270 326 340 52-week Range(HK$) 8.12-13.78 Net profit 173 363 331 346 Share outstanding (MM shares) 2,721 Core EPS (US$) 0.07 0.10 0.12 0.13 Market Cap (HK$MM) 24,759 Reported
12、EPS (US$) 0.08 0.13 0.12 0.13 Market Cap (US$MM) 3,178 Core EPS growth -44.9% 49.9% 20.7% 4.4% Free float (%) 57 Core P/E (x) 20.1 13.4 11.1 10.6 Average daily value (HK$MM) 38.2 Adj. EV/EBITDA (x) 17.6 11.1 9.5 9.5 Average daily value (US$MM) 4.9 Dividend yield 2.3% 4.0% 4.6% 4.8% Average daily vol
13、ume (MM shares) 4.2 Net gearing 44% 36% 30% 23% Exchange rate HK$7.79/US$1 Price to book (x) 1.1 1.0 1.0 0.9 ROE 7% 12% 9% 9%Source: Company reports, Bloomberg, J.P. Morgan estimates. Note: All EBITDA figures have been adjusted to include net profit contribution from JCEs and associates; Op-CF figur
14、es have been adjusted to include dividend income from JCEs and associates. 2 Asia Pacific Equity Research 25 August 2010Karen Li, CFA (852) 2800-8589 Company Description P For -consolidated ports, valuation is based on DCF (WACC: 8%, g: 5%); CIMC 2.2 (14% of total) Based on CIMC-B share price Logis
15、tics 0 Already divested in Aug 2009 Subtotal: 15.7 Adjust: Corporate other unallocated value (0.4) Total: COSCO PACs NAV 15.3 Source: J.P. Morgan estimates. EPS: J.P. Morgan vs consensus US$/shr JPM Consensus FY10E 0.13 0.11 FY11E 0.12 0. FY12E 0.13 0.12 Source: J.P. Morgan estimates, Bloomberg. Our
16、 Dec-10 PT of HK$15.3 translates into a target core P/E multiple of 16x, a target EV/EBITDA of 11x, and a target P/BV of 1.4x for FY10E (still versus CPs 10-year mid-cycle P/B multiple of 1.7x). Key risks to our PT are tariff cuts, weaker-than-expected volume growth, and execution risk with new port
17、 investments. Total PT: HK$15.3/share by Dec-10E 17% 70% 14% 0% Container leasing Port operation CIMC Logistics 3 Asia Pacific Equity Research 25 August 2010Karen Li, CFA (852) 2800-8589 1H10 core operating profit 5% ahead of our estimate Overall the numbers are ahead of our expectations despite a
18、few distortions highlighted in later sections: The groups operating profit came in at US$67MM, up 51% Y/Y and 56% Y/Y, driven by the strong recovery in all three segments. The results should come down well with the market in our view, given our FY10 net profit forecast is ahead of consensus, accordi
19、ng to Bloomberg. Total dividend declared at US$86MM, or US$4 cents per share, was up c100% Y/Y, driven by special dividends of US$2 cents per share. Table 1: CP2Q10 results highlights US$MM unless specified otherwise 2Q10 1Q10 1Q09 2Q09 3Q09 4Q09 J.P. Morgan remarks Actual Y/Y Q/Q Actual Actual Actu
20、al Actual Actual Net Revenue - Total 114 108 75 84 83 107 Cost of sales (74) (79) (41) (45) (43) (89) Admin expenses (12) (12) (13) (16) (13) (21) Only captures revenue from consolidated subsidiaries Share of profits of associates with the absence of the interim dividends, there was an adverse impac
21、t of c. US$10MM in the bottom line in 1H10. At the briefing, management noted the interim dividend from Yantian was only postponed into 2H10 in light of CPs acquisition announced in the second quarter. Management expects Yantian to pay the annual dividend by 3Q10, with an amount no less what was pai
22、d in recent years. #2 Piraeus port to break even on monthly basis from 2H10 Piraeus port incurred a total loss of US$10.7MM in 1H10 (vs. US$1.3MM in 1H09 representing the pre-opening expense as the port was taken over in Oct-09). According to management, the monthly run rate in the first five months
23、 was at approx. US$2MM loss per month, primarily dragged down by the higher payroll costs caused by the eight-month service agreement signed with Piraeus Port Authority (PPA), from 1 Oct. 2009 until 31 May 2010. After the service agreement ended in end-May, in Jun-10 all the prior 800-plus staff has
24、 returned to PPA (Pier 1), while CP reduced the total headcount at Pier 2 by c50% down to 400-plus staff, resulting a cost savings of approx. US$2-3MM per month. That said, CP continued to incur a monthly net loss of close to US$2MM in June and US$1MM in July as the local operation experienced a tem
25、porary hiccup due to the learning curve issues, which caused the throughput volume to drop to 44K TEUs in June and 50K TEUs in July (vs. an average 66K TEUs in the first five-month period). At the briefing, management delivered positive turnaround guidance, expecting the Piraeus port to turn around
26、on a monthly basis before end-2010, driven by: 1) Winning of traffic from MSC: According to management, negotiations are currently underway and CP expects to finalize the contract in coming months; 2) Installation of three crane machines with higher operational efficiency in Sept-10: Management guid
27、es for a break-even volume of 60-65,000 TEUs on a monthly basis, along with a steady trade mix similar to the current ratio (Transshipment vs. Domestic: 25%:75%). 17% stake in Sigma, which holds controlling stakes in the Yantian port assets, or c5% effective stake in Yantian Port In 1H10 before the
28、acquisition of additional 10% effective stake from Maersk, Yantian was still treated as a “sub-associate investment“ for CPs 5% effective stake1. As such, only dividend income would be recorded as its earnings contribution to CP. Starting from July 1, 2010, the Yantian asset has been reclassified as
29、 an “associate“ and hence CP would start booking the related profit using the “equity pick-up“ method 5 Asia Pacific Equity Research 25 August 2010Karen Li, CFA (852) 2800-8589 #3 Guangzhou Nansha port narrowed loss in 1H, to reach break-even around year-end Guangzhou Nansha port halved the loss to
30、 US$3.0MM in 1H10, from US$6.5MM over a year ago. On monthly basis, the port reached EBIT breakeven in Apr-09, but it remains loss-making at the net profit level dragged down by high financial costs as the capex for the six container berths were almost fully funded debt, with very little shareholder
31、 equity. Nanshas debt totaled Rmb3.2 billion (or US$477MM) as of end-1H10, with an average borrowing cost at 4-5% p.a. leading to an interest expense of approx. US$1.7MM per month. Management expects to reach break-even on a monthly basis around year-end, and break-even on full-year basis in 2011, d
32、riven by continued volume ramp-up as well as the following three management initiatives: 1) Potential tariff increases: According to management, Nansha has been in talks with shipping liners, looking to raise its handling charges on both international and domestic cargo, as its average pricing at pr
33、esent is unfairly low at only Rmb140 per TEU by 10% or more. Such tariff increases are not assumed in our forecasts. 2) Reducing financial leverage: Nansha actively taken measures to improve its financial structure with a view to lower financial costs. Management noted that Nanshas debt had been red
34、uced marginally to Rmb3.2 billion as of end-1H10, down 5% from over a year ago. 3) Lowering operating costs: Nansha has secured government grants with an amount of Rmb50MM for dredging, which should help lower its operating costs over the next 2-3 years. In 1H10, container throughput by CPs ports ro
35、se by 19% Y/Y. Looking ahead, management expected volume growth of 10-15% Y/Y for full-year 2010. Our forecasts continue to be based on the following assumptions: 1) Volume growth of +9.5%/+8.4%/+6.22% for FY10/11/12E; 2) Average pricing changes of +5% in FY10E (driven by trade mix changes) and flat
36、 in FY11/12E. 6 Asia Pacific Equity Research 25 August 2010Karen Li, CFA (852) 2800-8589 Table 2: CPSummary of financial results by port for the container port segment ( US$ 000) % Equity interest 2006 2007 2008 2009 1H09 1H10 J.P. Morgan remarks Bohai Rim Qingdao Qianwan 20.0% 26,429 31,410 27,325
37、 26,649 12,353 10,496 Lower profit in 1H10 due to higher tax rate, while deprecation charges may reduce as the port assets under QQNCT has been transferred to QQCTU in May-10. Qingdao Cosport 50.0% 12 50 (4,008) 114 48 70 Dalian Port Container Co., Ltd 8.1% - - - - 1,493 7,020 The profit in 1H10 rep
38、resents the disposal gain from the sale of the 8% stake completed in Jan-10. Dalian Port 20.0% (700) 390 1,960 (549) (541) 235 Turned profitable in 1H10 Dalian Automobile 30.0% (295) (340) (869) (364) (241) 162 Turned profitable in 1H10 Yingkou 50.0% 2,609 3,710 2,894 2,857 1,120 1,029 Tianjin Five
39、Continents 14.0% - 1,480 2,267 2,034 2,033 1,485 Tianjin Port Euroasia 30.0% - - (768) 15 15 - Operational from July-10 and hence will start contributing loss in 2H10; - - - - Yangtze river delta - - - - Shanghai 10.0% 6,827 6,390 6,469 2,736 1,764 817 Shanghai Pudong 30.0% 15,439 22,590 25,688 20,1
40、18 10,235 10,175 Zhangjiagang 51.0% 3,278 4,580 2,112 902 376 951 Yangzhou Yuanyang 55.6% 323 2,180 1,288 837 216 756 Nanjing Longtan 20.0% 713 930 1,393 986 442 765 Ningbo Yuan Dong 20.0% (422) 290 2,714 3,207 786 2,701 - - - - Pearl River Delta for China Merchants, given that the firm does not rep
41、ort throughput on monthly basis, we approximate by taking the sum of the following key ports; Shanghai and Western Shenzhen (Shekou, Chiwan and Mawan). 8 Asia Pacific Equity Research 25 August 2010Karen Li, CFA (852) 2800-8589 Container leasing in addition, container fleet size shrank by 1% Y/Y in
42、1H10; 2) Most importantly, most of the 49K TEUs of new containers purchased in 1H10 were delivered in 2Q10 and hence the benefit in 1H10 was limited, while higher rental rates will start taking effect only from 2H10; Reflecting the improving market conditions, CPs average utilization rate rose to 95
43、% in 1H10, up from 90% in 1H09. Management expects the ongoing slow steaming practice by shipping liners to add 5-8% extra new container demand, which will mostly go to leasing companies, as liners remain cautious on capex outlays. In addition, management noted the spot per diem rate for new product
44、ion has risen to US$1.1 per TEU per day, versus the average rate of US$0.8 in 1H10 and the rate of US$0.7 at beginning of the year. As a result, the ARPEC rate (average return per equipment, i.e. rental yield) has risen to c15% driven by higher new-build container prices (up from the average rate of
45、 13-14% in 1H10), to stay at around current levels through 2H10. Nevertheless, most of the benefits from higher rental rates and yields will be captured in 2H10 as most of the deliveries fall in late-2Q and 3Q. Finally, revenue from long-term leases continued to form the bulk, accounting for 93% of
46、total; management noted that for the long-term contracts, primarily those with COSCON, pricing terms though relatively stable versus shorter-term leases, are reviewed (usually in 4Q) on an annual basis with reference to the market rates. Table 4: CPFinancial performance of the container leasing segm
47、ent (US$MM) FY08 FY09 1H08 2H08 1H09 2H09 1H10 1H10, H/H Chng% 1H10, Y/Y Chng% Leasing revenue from owned containers 202 198 93 109 99 99 97 -2% -2% Disposal of returned containers 39 23 22 17 11 12 18 47% 69% Management income (on managed containers) 8 6 4 4 3 3 3 12% -4% Other 2 2 1 1 1 1 1 -5% -4
48、% Subtotal-Segment revenue 253 230 121 131 114 115 119 3% 4% Segment profit 115 71 65 50 37 34 48 40% 30% Segment margin % 46% 31% 53% 38% 32% 30% 40% 46% 31% Source: Company reports. Table 5: CPOwnership mix of the container leasing fleet (% of total container fleet) FY05 FY06 FY07 FY08 FY09 1H09 1
49、H10 Owned container fleet 96.7% 49.6% 49.8% 46.1% 46.9% 46.4% 44.2% Managed container fleet 3.3% 50.4% 50.2% 46.6% 45.6% 46.2% 48.4%Sales-and-leased back 0.0% 0.0% 0.0% 7.3% 7.5% 7.4% 7.4% Source: Company reports. Management expects the slow steaming practice, having added c.20% transit time with lower asset turnover, to last at least for another two years 9 Asia Pacific Equity Research 25 August 2010Karen
