• Core FY17 above our expectations
• FY17 total dividend of 3 US cents
• Uncertainties over potential trade war

FY17 Core PATMI Met 110% of Our Estimate

COSCO SHIPPING Ports Ltd’s (CSP, 1199 HK) core FY17 PATMI rose 25.5% to US$227.1m on the back of a 14.1% growth in revenue to US$634.7m, and 18.1% growth in share of profits less losses of JVs and associates rose 18.1% to US$236.6m. Revenue growth was largely driven by an 11.5% growth in equity throughput, acquisition of 51% equity interest in NPH Group and acquisition of remaining 76% stake in Zeebrugge Terminal. FY17 operating profit came in 37.6% higher at US$130.2m, helped by a 141.1% jump in other operating income, but offset by a 34.7% increase in administrative expenses.

Tensions on Trade Spat Between U.S. and China

After U.S. President Donald Trump announced tariffs on imported steel aluminum earlier in Mar 18, he further announced plans to impose tariffs on at least US$50b of goods from China, and wants a US$100b reduction in U.S. trade deficit with China. In response, China unveiled tariffs on US$3b of U.S. imports.

President Trump’s focus on China became clear as the U.S. government announced a temporary exemption from metal tariffs for the EU among several other countries, as well as an agreement with South Korea on trade and steel tariffs. However, the situation improved as China’s Premier Li Keqiang, on 26 Mar 18, said that China and the U.S. should maintain negotiations and reiterated pledges to ease access for American businesses, while U.S. Treasury Steven Mnuchin said the two countries are trying to see if they can reach an agreement as to what fair trade is for them as well as to stop forced technology transfer.

All said, until an agreement is reached, we believe market volatility will stay for a while.

Buffer in Valuations Gives Comfort

Given CSP’s below-average ROE and ongoing uncertainties over global trade outlook, we factor in a 40% (prev: 35%) discount to peers’ average of 1.11x forward P/B (HK-listed and China-listed companies excluding CSP) and peg our valuation at 0.67x FY18F P/B, deriving a FV estimate of HK$9.20. Over the longer-term, we remain positive over CSP’s strategy of leveraging on the COSCO group to unlock potential synergies.

Source: OCBC Research - 27 Mar 2018