• 1Q18 beat expectations
• Solid performance from overseas ports
• Strong throughput support from parent

1Q18 PATMI Met 29% of Our Estimate

COSCO SHIPPING Ports Ltd (CSP, 1199 HK) reported a positive surprise in its1Q18 results as PATMI jumped 84.3% YoY to US$69.2m on the back of an 86.1% growth in revenue to US$237.9m, and 73.2% surge in share of profits less losses of JVs and associates to US$63.3m.

Revenue growth was largely driven by a 32.5% YoY growth in equity throughput, 38.5% growth in total throughput of subsidiaries, which included throughput growth contributed by the acquisition of Noatum and Zeebrugge in FY17. Excluding these two acquisitions, CSP achieved 29.8% YoY organic growth in 1Q18 revenue.

Positive on Volume Support From Parent

Ports have been underperforming the market with the ongoing uncertainties over global trade outlook, as well as the proposed tariff cut (seems to be insignificant in 1Q18). That said, we continue to gain comfort from CSP’s strategy of getting throughput support from its parent company as well as the Ocean Alliance – 47% of subsidiaries’ throughput in 1Q18 was contributed by Ocean Alliance.

1Q18 YoY growth in equity throughput was largely broad-based by regions, driven by Bohai Rim (+94%) contributed by contributions from QPI, Pearl River Delta (+5%) on better performance from Yantian, and overseas ports (+52%) driven by increased calls from Ocean Alliance.

Looking ahead, CSP will continue to drive growth by:

1. throughput growth of subsidiaries by enhancing synergies with Ocean Alliance,
2. M&A contributions, and
3. enhancing efficiency to reduce costs.

Management also guided for low teens throughput growth for FY18. In addition, CSP has also guided for:

1. US$1.2b PP&E capex,
2. ~US$630m and ~US$90m in overseas and domestic M&A, respectively, as well as,
3. ~US$1.4b for strategic investment to participate in China port consolidation project with the port authority.

In our view, these potential investments will likely be one of the key factors to drive profit growth ahead for CSP, in a bid to achieve its five-year plan of doubling net profit.

Unchanged Forecasts

All considered, CSP is still trading at unjustified discounts to peers, and pegging our valuation at 0.67x FY18F P/B, we derive an unchanged FV estimate of HK$9.20.

Source: OCBC Research - 10 May 2018