The results for the first half of 2021 are in line with our expectations
COSCO SHIPPING Port announced the company's results for the first half of 2021:1H21's revenue increased 25% year-on-year to US$565 million, and net profit of the parent company increased 7.5% year-on-year to US$176 million (corresponding to earnings of 5.3 cents per share), in line with our expectations. Excluding the impact of asset disposal revenue in the first half of 2020, the company's net profit increased 85% year-on-year on a comparable scale, mainly due to a rebound in equity throughput, which increased 7.7% year-on-year) and operating leverage (the company's gross margin increased 4.4 percentage points year-on-year). The company's interim dividend was 0.02 US dollars/share, the corresponding dividend payment rate was 40%, and the dividend yield was 2.8% o the company's profitability further recovered in the second quarter of 2021. Thanks to effective cost control measures, the company's revenue growth rate further increased to 29% in the second quarter of 2021, and gross margin increased to 28.8%. The company's deducted non-net profit reached US$103 million in the second quarter of 2021 (up 59% year-on-year), the highest level of net profit for the second quarter since 2016.
Development trends
Contract freight rates benefit slightly from the current boom in the shipping market. In the first half of 2021, the company's revenue growth rate (25%) was higher than the throughput growth rate of its holding terminals (8%). The company's average revenue per TEU increased by about 16% year-on-year, partly due to exchange rate effects. The company's management said that thanks to the improved financial situation of shipping company customers and the tightening of terminal supply and demand due to the spread of port congestion between major ports, the company's contract freight rates increased by about 5% over the same period last year.
The new five-year plan aims to achieve steady growth and improve operational efficiency. The company has set a new five-year target by the end of 2025: equity throughput will reach a compound annual growth rate of 8.2%, while the operating cost per TEU will be reduced by 15%-20%. To achieve its growth goals, the company expects to actively seek M&A opportunities in Southeast Asia, the Middle East, Africa and South America. To achieve efficiency goals, the company plans to apply the NaviSN4 system and 5G technology.
Valuation and advice
We keep the company's 2021 and 2022 earnings forecasts unchanged. Currently, the company's stock price corresponds to 6.5 times the 2021 price-earnings ratio and 6.2 times the 2022 price-earnings ratio, respectively. We maintain our outperforming industry rating and target price of HK$7.86 (corresponding to 8.9 times 2021 price-earnings ratio and 8.4 times 2022 price-earnings ratio, respectively), which has an upward margin of 34.4% compared to the company's current stock price.
risks
Repeated outbreaks or weak demand caused throughput growth to fall short of expectations.