• 3Q18 PATMI up 12% YoY
• High base effect in 2H18
• Low exposure to US trade lines

9M18 PATMI Met 76% of Our Initial Fullyear Estimate

COSCO SHIPPING Ports Ltd (CSP, 1199 HK) reported a solid and in-line set of 3Q18 results yesterday, with PATMI increasing 11.8% YoY to US$75.1m. This was on the back of strong revenue growth of +62.6% YoY to US$253.0m and a flat share of profits from JVs and associates (-0.8% YoY to S$69.4m).

In terms of organic growth (excluding new acquisitions or projects under construction), revenue increased +11.8% YoY to US$174.0m while PATMI increased +9.1% YoY to US$74.0m. On a 9M basis, core PATMI jumped 46.6% YoY to US$244.1m, making up 76% of our earlier fullyear forecast.

Equity Throughput Growth of +11.4%

Operational fundamentals remained robust during 3Q18 with total equity throughput increasing 11.4% YoY to 9.6m TEU, which was contributed by 1) +30.8% growth from subsidiaries and 2) +2.1% growth from noncontrolling terminals.

Similarly, terminal profits from subsidiaries increased 25.4% YoY in 3Q18 while non-subsidiaries dropped 0.8% YoY. Geographically, 3Q18 YoY growth in equity throughput was driven by a >50% increase from overseas ports, partly a result of the Noatum acquisition.

We saw positive equity throughput growth at Bohai Rim (+2%), Yangtze Rim (+4%), and Southeast Coast & Others (+6%). On the other hand, we saw equity throughput declines for Pearl River Delta (-4%) as it was affected by the typhoon in September.

On an organic basis, excluding Noatum Port Holdings and Nantong Tonghai Terminal, total equity throughput in 3Q18 increased +5.8% to 9.1m TEU.

Management Is “cautiously Optimistic”

We are positive on CSP’s volume support from the OCEAN Alliance and its parent company. Including COSCO SHIPPING’s share, the OCEAN Alliance contributed 39.3% of the group’s subsidiaries’ throughput in 3Q18, a slight dip from 43.7% in 3Q17.

While the percentage contribution decreased due to factors like the Noatum acquisition, throughput contribution was up in absolute terms. CSP has not seen any signs of rush orders in 4Q18, which is to be expected given that its terminals have little exposure to US-China routes.

Management is “cautiously optimistic”, and is confident to achieve low double-digit growth for throughput in FY18 as a whole. We expect equity throughput growth to be positive in 4Q18, driven mainly by the group’s subsidiaries, but do expect it to be more moderate relative to what was seen in 1H18 given the higher base in 2H17.

As at 30 Sept 2018, net debt to equity stood at 29.5%. After adjustments, our fair value drops slightly from HK$9.37 to HK$9.35. Maintain BUY.

Source: OCBC Research - 30 Oct 2018