1H21's performance is in line with our expectations.

The company announced 1H21 results: the revenue in the first half of the year was 3.21 billion yuan, down 17.8% from the same period last year, mainly due to the decrease in the trading business of the company's subsidiaries; the return net profit was 943 million yuan, corresponding to 0.16 yuan per share, an increase of 4.3% over the same period last year, which was in line with our expectations. In a single quarter, the income in the second quarter was 1.43 billion yuan, down 23.5% from the same period last year; the net profit returned to the mother was 470 million yuan, down 3.9% from the same period last year, basically unchanged from the first quarter (net profit increased 13.9% in the first quarter compared with the same period last year).

Compared with the same period last year, the bulk cargo throughput decreased slightly in the first half of the year. In the first half of the year, the bulk cargo throughput of the company was 104.57 million tons, down 1.4% from the same period last year. According to the types of goods, the ore / coal steel throughput of Tangshan Port in the first half of the year was 46.78 million tons / 38.6 million tons / 7.45 million tons, respectively. The year-on-year change was-8.8%. The decline in ore throughput was mainly due to the decline in production and raw material demand of iron and steel enterprises in the hinterland. As a result, the company's ore imports have decreased. Coal throughput has declined or may be affected by foreign trade import policies; the steel market has benefited from strong demand in overseas markets and steel exports have increased significantly.

Development trend

Sell loss-making container assets, improve the company's overall profitability, and pay more attention to shareholder returns. According to the company's previous announcement, it plans to transfer the relevant assets of the container business to the controlling shareholder at a price of 1.98 billion yuan (2cm, 2pm, 2pm container berths and 60% equity of Jintang Container Company). In order to speed up the implementation of Tangshan port container resource integration at the Tangshan port group level. In 2020 / 1H21 Jintang Container Company lost 11 million yuan and 51 million yuan respectively, and the container loading and unloading business is still in the nurturing stage, so for the company, the sale of this asset will help to enhance the overall profitability of the company, and will also reduce the potential capital expenditure demand. The company will increase its dividend ratio to 64 per cent in 2020 (26 per cent in 2018 and 30 per cent in 2019), and we believe that an increase in the dividend ratio will help enhance the company's attractiveness to long-term investors, thereby boosting valuations.

Business and performance show resilience, the company is expected to usher in restorative growth this year. Even under the influence of the epidemic, the company achieved a small increase in cargo volume in 2020, reflecting the resilience of the company's ability to actively seize structural opportunities (such as ore) and open up new sources of goods (such as sand and gravel). We believe that this year, under the environment that the epidemic is gradually under control and the economy continues to recover, the company is expected to usher in steady growth. According to the Ministry of Transport, the cargo throughput of Tangshan Port in the first seven months of 2021 grew by 6.8% year-on-year at a low base in the same period last year, and the container throughput increased by 11.8% year-on-year profit forecast and valuation.

We keep our profit forecasts for 2021 and 2022 unchanged. The current share price corresponds to 7.3 times 2021 / 2022 / 6.8 times earnings. Maintaining a neutral rating, taking into account the decline in the valuation of the port sector, we lowered our target price by 7.7% to 3.01 yuan, corresponding to 8.7 times 2021 price-to-earnings ratio and 8.2 times 2022 price-to-earnings ratio, which has 19.4% upside space compared with the current stock price.

Risk

The competition among ports in the region intensified, the growth rate of throughput was lower than expected, and the loading and unloading rate decreased.