• Historical: Fwd P/B 42% below GFC trough
• Peers: 36% below CN peer average
• Revalued: SIPG stake worth HK$39.5b

1H Core PATMI Within Expectations

China Merchants Port Holdings Company Limited’s (“CMP”; 144 HK) core 1H18 PATMI decreased 4.3% to HK$2.2b mainly due to the disposal of China International Marine Containers (CIMC) in 2H17. This came up to 41% of our fullyear estimate which we consider in line with our expectations. For reference, 1H recurrent core PATMI contributed 36% and 41% of full-year results in FY16 and FY17.

Looking at the group’s ports operations alone, core PATMI increased 13.7% YoY to HK$2.8b on the back of a 10% YoY increase in segment revenue to HK$13.4b, which was the result of new acquisition projects and a rise in business volume.

CMP’s total container throughput increased +7.3% YoY to 50.2m TEUs with Mainland Chinese throughput increasing +5.6% to 40.0m TEUs, HK & Taiwan throughput staying the same at 3.7m TEUs, and overseas throughput increasing +18.2% YoY. In particular, throughput growth was -0.5% for Pearl River Delta (PRD) and +4.6% for Yangtze River Delta (YRD).

Yes, Economic Risk From US-China Trade Tension Is There…

We are not particularly worried about the direct impact of the US/China tariffs on throughput as we estimate that US-China trade lines make up <10% of the total at PRD and YRD. In our view, the more pertinent threat stemming from the US-China dialogue is the possibility of the significant slowdown in the Chinese economy and broader implications on the region’s trade patterns.

We continue to expect mid-single digit throughput growth for FY18 driven largely by YRD, but have lowered our throughput growth projections across the board for FY19. As a result, PATMI is forecasted to grow +1.1% YoY in FY19 (+11.0% previously).

But Undeniably Attractive Valuations

We look forward to CMP’s long-term strategy to expand overseas by targeting ports along One Belt, One Road and to unlock land value at Qianhai through its “Port, Park, City” land development.

Meanwhile, we see compellingly deep value in CMP on three fronts – historical valuations, peers, and in terms of its revalued balance sheet (see report appendix).

With a change in covering analyst, we peg a 1.0x fwd P/B to arrive at a HK$23.00 FV, up from HK$22.00 previously. While we do not anticipate immediate catalysts for the narrowing of this valuation gap, we see an attractive opportunity for longer term investors. Maintain BUY on CMP.

Source: OCBC Research - 3 Sept 2018